Kinross Gold Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Kinross Gold Corporation fourth quarter and full year 2020 results conference call and webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your first speaker today, Tom Elliott, Senior Vice President, Investor Relations. Please go ahead, Mr. Elliott.

Thank you, and good morning. With us today, we have Paul Rowlinson, President and CEO, and the Kinross Senior Leadership Team, Andrea Fribourg, Paul Tamori, and Jeff Gold. Before we begin, I would like to bring your attention to the fact that we won't be making forward-looking statements during this presentation. For a complete discussion of the risks, uncertainties, and assumptions which may lead to actual results and performance being different from estimates contained in our forward-looking information, please refer to page two of this presentation, our news release dated February 10th, 2021, the MD&A for the period ended December 31st, 2020, and our most recently filed AIF. all of which are available on our website. I'll now turn the call over to Paul.

Thanks, Tom. Thank you all for joining us today. 2020 was a unique and challenging year for everyone. I would like to acknowledge and thank all of our people who worked hard to keep our company on track and deliver on our promises in these unprecedented times. Despite the obstacles presented by the pandemic, we delivered an exceptionally strong year, and we're able to meet our original 2020 guidance for production, costs, and CapEx. We have now met or exceeded our guidance for nine consecutive years, a record that speaks to our culture of operating and technical excellence and a record we are very proud of. Before turning the call over to Andrea for a financial review and to Paul for an overview of our operating performance, I will comment briefly on our key accomplishments, outline some upcoming milestones, and touch on our ESG performance. From a financial perspective, 2020 was an outstanding year. Because of disciplined cost management and capital spending, we were able to capitalize on the strong gold price and delivered record-free cash flow of more than $1 billion, along with very healthy margins. We expect strong margins and free cash flow to continue into the coming year and beyond. In 2020, our three largest mines, Paracatou, Cupol, and Tassius, represented more than 60% of our production, and for the second year in a row, were the lowest-cost mines in the portfolio. As a result of our strong operating and financial performance, our balance sheet continued to strengthen and we finished the year with just over $1.2 billion of cash. Last night, we reaffirmed our guidance of production rising approximately 20% over the next three years. Specifically, we expect our production to grow by roughly 500,000 ounces from 2.4 million ounces this year to 2.9 million ounces in 2023. Furthermore, we maintain an excellent long-term outlook with average annual production of 2.5 million ounces through the end of the decade, with additional upside opportunities beyond that. Andrea will provide more detail on our 21 guidance shortly. I'm also pleased that we were able to return capital to our shareholders with a sustainable quarterly dividend of 3 cents per share. We are also proud to report a 23 percent increase in total reserves compared with 2019. These additions were based on a $1,200 per ounce reserve price. Reserve pricing is understandably gaining a lot of attention given the current gold prices. We have concluded that maintaining a $1,200 reserve price helps to ensure our business maintains strong margins and is well positioned to generate value throughout the commodity price cycle. Paul will comment on reserves and resources in more detail later on this call. In terms of other notable accomplishments during the year, we closed our Chalbacon acquisition in Russia and acquired additional licenses to enhance our already attractive land package. We acquired the Kayan-Mavam property, which is 130 kilometers from Kupol and offers excellent near-term exploration potential. We acquired a 70% interest in the peak project in Alaska. We reached an agreement in principle with the government of Mauritania, which we are close to finalizing. And with an upgrade from Moody's, we achieved investment grade ratings from all three agencies. We completed our Gilmore project on time and under budget. And we remained on track at all of our other development projects. Looking forward to 2021, we expect to continue our consistent performance and have a number of significant milestones to watch for this year. During the first half of the year, we expect to complete a feasibility study for Round Mountain Phase S, a scoping study for Peak, and a feasibility study for the Fort Knox Gill satellites. During the second half of the year, we expect to complete a pre-feasibility study at Udinsk, to complete a feasibility study for Lobo Marte, and TASIA's throughput to reach 21,000 tons per day by the end of the year. Our operations are performing strongly. Our portfolio is well positioned to carry us through this decade, and our balance sheet is in excellent shape. In summary, Kinross had a great 2020 and is guiding for three years of growth in production and cash flow. We also have a pipeline of capital efficient growth projects and an exciting number of additional development opportunities to drive our current production through the next decade. Finally, before handing off to Andrea, I'd like to make a comment on our key achievements related to ESG. We continue to make meaningful contributions in the regions in which we operate, including providing support to our local communities during the pandemic. We score on the top quartile of the peer group with all of the major third-party ESG rating agencies. We remain among the lowest greenhouse gas emitters in our sector on both a per ounce and a per ton basis. We continue to receive recognition for our environmental achievements, including in Russia, the World Wildlife Fund for Environmental Transparency, ranking first in three of the past four years, including the top ranking in 2020. And for the second year in a row, we were the highest rated mining company in the Global Mills Annual Corporate Governance Safety Survey. I also want to comment on safety, which is our first priority at the company. Our injury rates are among the lowest in the industry. However, sadly, this was overshadowed in 2020 by a mine site fatality. Following this tragedy, the company held a global safety stand down to reinforce our standards and to make sure we are doing everything possible to ensure the well-being of our employees. This tragedy was a reminder that despite our tireless efforts in this area, our work is never done. I'll now turn the call over to Andrea for a more detailed review of our financial results.

Thanks, Paul. I'll begin with financial highlights from the quarter and the full year. I'll also give an overview of our balance sheet and then provide some commentary on our outlook. As expected, production increased throughout the year and the fourth quarter was the strongest, production of approximately 624,000 attributable gold equivalent ounces and sales of 633,000 ounces. For the full year, we produced 2.37 million attributable gold equivalent ounces and sold 2.36 million ounces. And as Paul mentioned, we met our guidance for the ninth straight year. Despite many pandemic-related challenges throughout the year, we were able to deliver strong cost performance. Both full-year production costs per ounce of $723 and all-in-sustaining costs per ounce of $987 were within a few percent of our 2019 costs, while our realized gold price increased by more than 27%. As a result of this cost discipline, Our attributable operating margin increased by 53%, and our adjusted operating cash flow increased by 59%. Furthermore, in 2020, we were able to convert a significant portion of our operating cash flow into free cash flow, which increased more than sixfold compared to 2019. Full year free cash flow was over $1 billion, with approximately 37% of this being generated in the fourth quarter. Finally, our Q4 adjusted net earnings of approximately $335 million and adjusted operating cash flow of approximately $528 million were also both up significantly compared with the fourth quarter of last year due to the reasons I mentioned. It is worth noting that these adjusted figures exclude approximately $23 million of COVID-related costs and donations during Q4. which was up from about $17 million in Q3. As we previously stated, these costs are primarily driven by quarantine measures taken at site, so as long as quarantining is necessary, these costs will persist. Capital expenditures were $298 million during the fourth quarter and $916 million for the year, which was in line with our guidance. In 2020, we reported non-cash impairment reversals, net of taxes, totaling approximately $613 million, related to property, plant, and equipment at Passions, Tirano, and Lobo Marte. The impairment reversals are largely as a result of higher gold price assumptions, as well as the mine life expansion at Tirano. Following another quarter of strong results, we ended the year with just over $1.2 billion of cash and cash equivalents, compared with approximately $575 million at the end of 2019. The increase in our cash balance was due to our robust cash flow and the $200 million drawdown on our TASIUS project finance. These increases were partly offset by the first payment for Chilbacon, our acquisition of PEAT, and a net repayment of $100 million on our revolving credit facility, as well as interest and dividend payments. Subsequent to year-end, in January, we made our final Chilbatkin payment of $142 million in cash and also made a tax payment in Brazil of $86 million. Other significant cash outflows expected in Q1 include our regular interest and dividend payments, As at the end of December, our total debt was approximately $1.9 billion, with our next meeting in September of this year with $500 million in senior notes coming due, which we expect to repay. Our year-end net debt was approximately $700 million, and our trailing 12-month net debt to EBITDA ratio improved once again to approximately 0.35 times. At current gold prices, we expect to be approaching zero net debt by the end of 2021. In summary, we're comfortable with our balance sheet and we're well positioned to fund our growth in the next few years while continuing to reduce our net debt and pay dividends to our shareholders. Turning to our outlook for 2021, I want to note that all figures I referenced are within our typical confidence range of plus or minus 5%. First, with respect to production, we expect 2.4 million gold equivalent ounces in 2021 in line with 2020. Expected production growth in the Americas is offset by modest production declines anticipated in Russia, with the end of mining at Dubois and in West Africa, as taxes undergo the catch-up yearfall and delays in mining activity due to COVID during 2020. Cost of sales are expected to increase from $723 per ounce in 2020 to approximately $790 per ounce in 2021, before declining again in 2022. This increases the result of a few factors, including higher operating waste and lower production at Passius with delayed access to higher grade ore, which pushed 100,000 ounces into 2022. Higher operating waste at our North American operations. and fewer low-cost ounces coming from our Devonoy mine in Russia after completion of mining in late 2020. However, to reiterate, cost of sales is expected to decrease in 2022 and return to levels that are largely in line with 2020 as production at both Cassius and McCoy's are ramped up. All wind-sustaining costs during 2021 are expected to increase to approximately $1,025 per ounce from $987 per ounce in 2020 for the same reason. It is worth noting that production and cost are both expected to increase throughout the year, with higher costs largely driven by anticipated increases in operating wages. Our cost guidance assumes a $1,500 per ounce gold price, and includes other assumptions with respect to currencies and oil prices, which can be found on page 11 of our accompanying slide deck or page 8 of our Q4 results press release. With respect to CapEx, we expect approximately $900 million of expenditure in 2021, which is in line with 2020. Our exploration budget is increasing to $120 million due to enhanced programs that will follow up on areas of success in 2020. With respect to CAPEX beyond 2021, I'd like to clarify that when we provided our three-year CAPEX outlook in September of last year, we indicated the outlook was predicated on our baseline production and excluded additional opportunities in our pipeline with the exception of our eugenics projects. As other projects advance and are ultimately approved, we expect that our CapEx guidance could increase in 2022 and 2023. For context, examples of projects which could be approved and move into our CapEx guidance include Round Mountain Phase S and Fort Knox P. However, as additional capital projects are approved, we would expect to be providing further detail on the anticipated production and returns associated with these expenditures. Therefore, as we continue to advance our extensive pipeline of projects, CAPEX guidance for later years can ultimately increase to be more in line with 2021 models. With that, I'll now turn the call over to Paul Forney.

Thanks very much, Andrea. I'll share highlights from our reserve and resource update and provide an update on exploration activities before giving a review of operations and development projects. First, however, like Paul said, I want to acknowledge our employees who went over and above the call of duty in delivering exceptional results in what was a very difficult environment. Much of the uncertainty that we faced at the beginning of the pandemic has lifted. However, we remain cautious and prepared as the second and in some cases third waves continue to evolve. Fortunately, we did not experience any major disruptions to our operations and were able to meet guidance in 2020. Moving to our reserve and resource update, we are pleased to have added 8.7 million ounces to proven and probable reserves, while depleting just over 3 million ounces in 2020 for a net reserves increase of 23% compared with year-end 2019. This brings our total proven and probable reserves to approximately 30 million ounces. As Paul noted, this growth was achieved while maintaining our $1,200 per ounce reserve price. Lobo Marte was the largest contributor, We had a conversion of 6.4 million ounces from reserve to resources, as announced with the mid-year PFS results. Furthermore, successful exploration and engineering optimization programs at KUBL and Toronto extended mine life by one year and three years, respectively, each to at least 2025. Additionally, and notably, PERC2 largely offset depletion, adding one year of mine life production at this Tier 1 asset. In terms of resources, we have elected to increase our gold price assumption for all resource categories to $1,600 per ounce. We believe this assumption allows us to better illustrate the significant potential of our assets in the context of the current gold price environment. I'd like to note, however, that updating the resource amount to $1,600 is only the first of several steps. Next, we'll include more drilling, as well as looking at different ways to apply engineering principles to our mine plans. and this will occur over the coming years. As a result of this assumption change and excellent exploration results, our inferred category increased from 5.9 to 9 million ounces. Measured and indicated resources declined from 35.5 in 2019 to 32.4 in 2020, primarily due to the reserve conversions at Lobo and Park 2 that I mentioned, partly offset by exploration additions and the acquisition of the Peak Project in Alaska. In summary, our reserves grew by almost 6 million ounces net of depletion, while our mineral inventory and measured indicated inferred was stable despite the significant reserve conversions. Results that further support the long-term prospects of our portfolio. Shifting to exploration, we're excited that 2021 will be our biggest year since 2015 as we follow up on new, most promising opportunities. We have lots of new targets as a result of the acquisition of advanced exploration projects such as Kayan Maibam, the Chula Khan wraparound licenses, and PEAK. We intend to spend 60% of our overall budget in Russia and at Tirana and Curlew, and then continue to prioritize other opportunities within the footprints of existing mines. Starting with Russia, we added 409,000 gold-equivalent ounces to mineral reserves at Kupo and Duboino, our largest addition since 2014, largely replacing depletion for the second consecutive year. We accomplished this despite COVID restrictions, which limited activities in 2020, including surface work at Kupol and step-out drilling at Udinsk. Looking forward, we continue to be very encouraged by the exploration process at Kupol. We have six underground and two surface drill rigs in operation with the goal of adding inferred resources and upgrading additional resources to reserve. Results from late 2020 drilling have delineated substantial mineralization previously unrecognized at the southern and northern strike extensions of the Kupol ore body. We expect to continue exploring these zones in 2021. We also remain focused on grassroots exploration within the Kupol Synergy Zone of Influence, which covers a radius of about 130 kilometres around the Kupol plant, targeting areas that could be economic to mine life, given the proximity to the Kupol Mill. We expect to spend $25 million in 2021 to explore targets within this zone, including the newly acquired and promising Kavralianskaya licenses. Staying in Russia, our progress continues at Udinsk, expected to be the first mine within our Chulbakan license. A total of 60,000 meters of infill drilling was completed in 2020, and approximately 260,000 ounces were added to the M&I resources. This drilling confirmed our original thesis at the time of acquisition. A comprehensive drill program is planned for 2021, with the goal of declaring a reserve at year-end in line with expectations. On the larger Chilvacan license, surface geocam exploration activities were carried out during 2020. These programs resulted in encouraging results and confirmed known targets and the discovery of new target areas near the Udinese Strip. As such, the 2021 drilling program will prioritize these targets, followed by drilling for strike and depth extensions. Turning to Ghana, exploration spent at Toronto in 2021 is being increased to $12 million in order to drill depth extensions at Obra, Akwaba, Surah, Tano and near the Mamnao open pit, all promising prospects. The budget also includes the construction of an exploration declamp to drill the northerly plunge extensions at Obra from underground. We are targeting a significant portion of estimated mineral resources for potential conversion to reserves in 2021 and 2022 from Oval, Coala, Surat, Tano, and Mamnow. Moving to Americas, exploration at Bald Mountain this year will focus on following up on targets identified during 2020 that could add resources in the future. At Ram Mountain, a large portion of our $6 million budget is earmarked for the Phase X deposit. Drilling is expected to test a long strike in Dam Dip with the goal of delineating potential underground mining resources in the future. At Fort Knox, the $5.5 million budget will be spent on targeted conversion of resources to Gil Sourdough to continue exploring the western extension of Gilmore and to explore the newly acquired property. At Curlew, we continue to advance our efforts by rehabilitating the old K2 underground to test the continuation of the Galaxy and Marlin targets, where 2020 drilling intercepted 6 gram per tonne veins. In addition, the K2 deep vein structure was established. extended long strike by approximately 300 meters and a 50-meter deep extension. This year, we have increased our greenfield budget as well, where our philosophy is to explore for high-grade deposits in North America, Europe, and Russia. Turning now to our portfolio of operations and projects, all of which continue to perform very well in the face of COVID-19. As Paul indicated previously, our three big mines, Pergates, Hazards, and Kupel, continued their strong performance, They accounted for more than 60% of production during the year and were the lowest-cost mines in the portfolio. Paracastro was once again our largest producer, with 542,000 ounces, but down slightly from 2019 due to lower recoveries than throughput as planned. Turning to Russia, Kupel and Devoinor delivered another exceptional year, with costs below $600, although production was down slightly from 2019, mainly as a result of anticipated lower grades. We completed mining activities at Des Moines in November 2020. However, exploration activities are ongoing, and we expect to continue processing staff at Des Moines ROR through to the end of 2023. At Udinsk, project studies are advancing on plan, including the development of the resource plan and fleet selection. An EPCM contract has also been awarded. We expect to complete the PFS in Q4 this year with the goal of declaring a reserve at year end, in line with our view at the time of the acquisition. while first production is still targeted for 2025. Moving to TASIUS, the operation delivered record-free cash flow and also beat the prior year's record for production and cost of sales per ounce. Production increased again in 2020 due to the continued successful de-bottlenecking of the process plan and planned increases in throughput leading to record Q4 gold production. Cost of sales per ounce were the lowest in the portfolio for both the quarter and the year, at approximately $565 and $585, respectively. Despite challenges in 2020 related to the pandemic and a strike in the TASIUS, the TASIUS 24K project remains on budget and on schedule to increase throughput to 21,000 tons per day by the end of this year and to 24,000 tons per day by mid-2023. The project is now approximately 60% complete, mechanical work on the process plant and construction of the power plant both proceeding exceptionally well. Now turning to our U.S. operations. At Fort Knox, four-year production increased compared with 2019 as a result of higher mill grades and throughput. Cost of sales were in line with the previous year. The Fort Knox-Eelmore project was completed on time and under budget, with first gold poured in January of this year. We also made good progress with a peak project since the acquisition in September. a close working relationship has been established with the local Upper Tanana Acrobatic Village of Kettering. We have commenced drilling and are also advancing initial permitting work and environmental studies, with completion of the scoping study expected in the second quarter of 2021. Engineering contracts have been awarded for infrastructure and processing at peak, as well as for mill modifications at Fort Knox to process peak ore. At Ram Mountain, full year production was lower compared to 2019, mainly due to lower mill grades. while full-year cost-of-sales brands decreased slightly due to lower operating waste mines. At Bald Mountain, full-year production increased slightly with higher grades, while cost-of-sales also increased year-over-year due to higher operating waste mines. During natural projects in Chile, we made significant progress at both Lobo and La Coypa. Starting with Lobo Marte, the feasibility study continues to advance on schedule and is expected to be completed in the fourth quarter of this year. with first potential for production in 2027 following permitting. At La Coypa, we are fully permanent and the restart is progressing well. Pre-stripping commenced as planned in January, and we remain on track for first production in the middle of 2022. We continue to advance opportunities to incorporate adjacent deposits with existing resources to potentially extend mining at La Coypa, particularly the deposits at Peren, Coypanorte, and Cancans. Finally, at Toronto, I'm proud of the hard work that the team did to spend my life of three years, a culmination of a refined focus on drilling, great exploration, cost-getting, productivity, engineering, tailings facility expansion. To wrap up on operations and projects, our priorities continue to be the health and safety of our employees, particularly in the context of this ongoing pandemic, our social license operate and the well-being of our communities and stakeholders, strong, consistent operating results, and delivering our projects on time and on budget. And with that, I'll turn the call back over to Paul.

Thanks, Paul. I want to reiterate our gratitude to our employees, suppliers, communities, and host governments who have all continued to work together to help us stay safe and productive. As a result of everyone's hard work, all of our sites are operating well, and our projects continue to advance on time and on budget. our business remains very well positioned. Our commodity prices and currencies are favorable. We have an attractive global portfolio of operations, coupled with a robust pipeline of projects and exploration opportunities. We have a proven track record for operational excellence and project execution across all of our geographies. We continue to generate substantial free cash flow and further strengthen our balance sheet. And we are a leader in the mining sector for ESG performance. With these attributes, we are in a great position to continue driving meaningful value creation and share price appreciation. And with that, operator Carol, I would now like to open up the call for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound or hash key. Our first question this morning comes from Greg Barnes from TV Securities. Please go ahead.

Yes, thank you, Paul and team. Just clarifying the CapEx guidance. Obviously, you have the guidance out there for 2021 of 900 million. It appears if you sustain that CapEx, the 900 million, that would give you a 3 million-ounce production profile through the decade? Is that how we should think about that?

Yes, and Greg, I'll take that one first, and Andrew might jump in. So this relates to the 10-year outlook that we put out a few months ago and the three-year guide, so we're 2.4 and going up to 2.9 in a couple of years. The capex associated with getting to that figure is 900, 800, 700 over the next three years. However, there will be projects that get approved that will support that will supplement the production profile.

We expect we'll get approved.

We expect we'll get approved. And there's a number of projects, some will be approved, some won't, which will contribute to the 10-year outlook. And so as those projects are approved, we expect that the 800 and the 700 will likely drift upward as we are able to strengthen the production profile beyond 2023, if that makes sense. In other words, the 900, 800, 700 over the next three years get us up to the 2.9 in 2023, After that, we're guiding to an average of two and a half. But that's a number that could get better if we have attractive projects to approve. And we certainly believe we do.

So the two and a half, you generally need about $750 million to get to support that.

That's roughly correct. I mean, we had endless debates on this topic as we prepared for this call. But basically, over a long run, not measured necessarily in individual years, but over, say, two, three-year horizons, a number of 3 to 350 of capex rounds is not a bad number to use. And so you're right that to sustain 2.5, roughly speaking, that number is not – 750 is about the right number. The reason that it could retire is that we do have enough resources in the portfolio to potentially drive years that may be higher than two and a half. So the capex number will fluctuate accordingly, of course, with it being a leading indicator for production that shows up two or three or four years later, depending on the project.

But by definition, we're now out looking four or five years. And it's just, you know, our level of accuracy as we look further out. We have given a very solid, committed three-year guidance. And we've given visibility on what will backfill in over the next three years to continue. But, you know, there's a bit of a limit to how accurate we can be, how far out we go.

I think part of the message as well is as we add these projects that we may approve, we don't see the capex going significantly higher than where it is as we're guiding for 2021. Yeah, that's a good point.

I mean, we would characterize it all as quite manageable and not spiky or lumpy as we look forward.

I'll use a hypothetical example here. So let's say later this year we approve a project or two, strictly hypothetically. That might then cause us to update our three-year guidance, which would then roll into 2024, in which case we would update near-term capital guidance. And if the guidance goes up from the 987, it would be accompanied by an increase in production into that next year of the three-year guidance. So it would be a logical addition to both capex and production that are tied to each other.

I think Andrea's point, too, is that the $900 million is a manageable number, and that obviously drives a higher production profile over time without being spiky. Good. Thank you. That's helpful.

Our next question comes from Fahad Tariq from Credit Suisse. Please go ahead.

Hi, good morning. Thanks for taking my question. Now that you're using $1,600 an ounce for resources, but still using $1,200 for reserves, can you remind us, as you think about some of these projects internally and budgeting and thinking about what's economical and not, what price is being used for making that assessment? Thanks.

Well, we're still making all of our economic assessments. Mine plans are around $1,200. I think, and Paul can chime in here, I mean, We've been at 1,200 for reserve and 1,400 for resource for many years, maybe even a decade. And, of course, 1,400 resource for the longest time was above spot. In the context of where we are today, we get a lot of questions about, you know, what does our portfolio look like? And by moving to 1,600, which is obviously a couple hundred dollars lower than spot, We're attempting to give some visibility into the portfolio, but as Paul said, it's a first step. It's not a fully engineered resource calculation. It's more of a spreadsheet kind of calculation to get a better understanding of the true resource potential. We'd have to do more infill drilling, and that'll take time, but I think directionally it's just meant to give people a better look, and it's really for our business planning purposes to understand our ore bodies.

One other point of context here that may be helpful is we also do look at longer-term big capital items differently than we might on quick payback, shorter-term opportunities, where in the short term, something with a quick payback, we might consider, though they are reserved at $1,200, perhaps marginal at $1,200, in the context of, say, $1,300, $1,400, $1,500 on a short payback item. we might look at that a little bit differently compared to a longer-dated project such as Logan Marte.

Got it. Okay. Yeah, that's it for me. Thanks.

Thank you. Our next question comes from Tyler Langdon from J.P. Morgan. Please go ahead.

Good morning. Thank you. I just had a more general cost question. Obviously, sort of oil, diesel prices are going up. Are you seeing any other I guess, signs of cost inflation around labor or, you know, any other materials that could maybe sort of pressure the cost guidance for the year?

Yeah, so you've hit on the oil point. That's an obvious one. In general, the costs that we're most exposed to, first of all, start with currency. I mean, if the currencies where we operate remain favorable, say the real in Brazil, the peso in Chile, or the ruble in Russia, those are helpful. But in terms of key input commodities, We're not seeing a lot of upward drift in pricing. What we do see, though, sometimes is longer lead times on capital equipment, primarily pandemic-related, but we're not seeing a lot of pricing pressure. We do have inflation in Brazil, as you'd expect, with a lower currency that is accompanied by an amount of inflation. But unlike the last cycle, say going back 10 years, where inflation ate away the benefits of currency, We're not seeing that right now. So in other words, the net equation on currency weakness versus local labor cost inflation is still a net positive. So to answer your question, yeah, you get the oil number. But in general, key inputs, key capital equipment are relatively tame with creeping inflation in some of the places where we operate.

I would just add as well that we are hedged on currencies and on oil, so we're about 50% hedged for Russia, Brazil, and on WTI for 2021, and then lower amounts for the year after that.

Okay, that's helpful. I just had a quick follow-up question on free cash flow. Obviously, 2020 was a strong year, and when you look out to 2021, I know CapEx should be kind of flat year over year. I know Maybe it looks like cash taxes could be up a little bit. Are they just moving items to think about when trying to make a free cash flow bridge in 21 versus 20?

Sure. I mean, we do expect to have strong cash flow in 2021, especially at current gold prices. But everything being equal, as you suggested, there were some items in 2020 we may not see in 21. And we've already noted that cash costs will be higher in 2021, so that will be an impact. Exploration, we expect to spend more on exploration in 2021 than we did in 2020. And we did have a fairly significant U.S. tax refund in 2020 that we don't anticipate this year. I would just highlight as well that going forward beyond this year, 2022 and 2023, we do expect our free cash flow to grow. significantly as production rises and cash costs come back down.

Great.

Thanks so much. Our next question comes from Josh Wilson from RBC Capital Markets. Please go ahead.

Thank you. I was just wondering if you could provide any update on the current status of signing the Mauritania agreement that was announced last year.

Sure. Yeah, look, We announced that heads of agreement last year. It's moving along well, but we have had some macro, you know, headwinds. Along the way, we got a new mines minister who's just been a great and, you know, super engaged and driving towards the finish line. We've had to work through COVID. You know, I think in general, sovereign authorities don't move at the same speed as we would in in private world. But I would say it's going well. We're really just hammering out definitive documentation with lawyers. We're meeting regularly now, and we expect we'll get it wrapped up fairly quickly. And no departures at all from our key terms that we outlined in the heads of agreement.

OK. And then maybe sort of following up the last question in terms of the industry changes you're seeing, the U.S., I guess, has been outlined as a jurisdiction maybe where there could be, or maybe in Nevada, mining tax increase or corporate tax change more broadly. Is there any commentary you have on that or broadly some of the fiscal term items you're seeing out there?

I mean, not yet, really. I think it's still early days. I mean, we obviously follow what goes on, but Look, we work through all kinds of administrations all around the world. U.S. is no different. Federally, it's important. State's important. You know, there was noise, comments made during the campaign, but nothing yet that would cause us to be concerned. I'd characterize this as we're in a bit of a wait-and-see as it relates to the U.S.

Yeah, I mean, you know, Biden in his campaign had proposals to increase the corporate tax rate in the U.S. and to introduce a minimum tax, but it's too soon to say, you know, what impact that might have and whether those details may change now that the administration's in place.

Great. Thank you very much.

Our next question comes from Mike Parkin from National Bank. Please go ahead.

Hi, guys. Thanks for taking my questions, and congrats on the good quarter. Just maybe going back to Greg Barnes' question. So, you know, capital intensity kind of indicates $300 an ounce. So just as a sense in terms of if some of these other projects kind of get green-lighted, would you expect that kind of $300? It seems like the $300 per ounce might come down a little bit. So you get more production, but capital intensity – ounce probably doesn't change. If anything, it maybe improves a little bit. Is that the right way to read that?

I mean, we kind of put that $300 an ounce directional, you know, advice out there. I've sort of said candidly in a one-on-one, it gets you to the right street, but maybe not to the right house address. It's meant to kind of ballpark you. But even in the rearview mirror, you know, it'll fluctuate up and down year to year depending upon where we are in our mine plans and our stripping campaigns. But that number as a starting point, I think, gets you reasonably into the zone of where to start, and we'd refine as we get closer.

And it also depends on the production mix that comes out of that. So at Kupel, for example, adding two, three, 400,000 ounces in the production profile is, I'm not going to say free, but essentially free on a capex basis, just a few development meters here and there, whereas additional ounces at Ram Mountain, say from Phase S, come with a reasonably hefty stripping ticket. So it also depends on the mix of production and capex.

And then, you know, when we spend the capex, the production comes in later years, so there's a lag. There's a lag, yeah.

Sure. Okay. And then just on the exploration side of things, are we still on pace to start doing step out at Shabatkin outside of the main resource pit?

Yeah, so that's the focus for this 2021 program. Just a clarification on nomenclature. Udinsk is the principal resource pit. It is the fixed resource scope that we're taking to a PFS right now. And the plan for 2021 is absolutely to focus on targets that were identified through a combination of geophysics and geochemistry. And there are quite a number of attractive targets we've identified on the property. Some of them are very close to the dense pit along the same fault, and some of them are a little bit further afield. But to answer the question, absolutely, yes, that is the focus this year, now that we've got the principal resource moving forward into PFS.

Okay, and it seems like you guys didn't have much of a trouble getting drilling done in Russia, where some of your peers have indicated coming in under budget to plan meters. Is that accurate, and therefore we could expect some pretty good meterage rates coming out of Russia for 2021?

Yeah, the answer is mostly yes. We were hampered. at Koople. So Koople, we got exploration done that was principally underground, where we were doing it with the mine ops team, whereas a lot of the surface drilling, we did have to curtail at Koople simply because camp space was being consumed by people in quarantine. So we did see our meters on surface drilling at Koople fall under budget. However, at Chulba County, we did deliver the program. It was a late finish, but we got it delivered in the end of the year. We see that debunking. going into this current year. So we view our ability to meet our meters in the budget as better than it was last year. One other comment I'd make is that it's not just drilling that's impacted by COVID, but it's also turnarounds at our labs. So, for example, at Chuba County, we got our meters drilled. We still have a backlog of assays coming from the labs that we expect to clear over the next little while.

Okay. And then we've noted quite a bit of kind of back-half guidance-weighted from peers any comments on that in terms of production profile or capex spend or should we expect any kind of heavier capex spend on the first half or second half or is everything fairly consistent quarter over quarter we did note that our production and costs are both expected to increase throughout the year so higher in the second half than the first half and on the cost side that's

related to increased operating of lace stripping in the second half. And on the production side, I think it's mostly Cassius increasing in the second half. On CapEx, it's fairly consistent throughout the year, but we do tend to, we do historically tend to spend more in the second half, but as we start the year, it does look like fairly even throughout the year.

Okay. And last question. With the complex of Lobo Marte and La Coypa, if you green light some of the satellites around La Coypa, will that defer the start of Lobo, or would you still look to kind of do Lobo and then maybe satellites?

So the satellites are required to bridge. Depending on how many of those satellites we get in there, there could be a deferral at Lobo Marte. However, the satellites are needed for a full bridge. Our strategic objective is to have uninterrupted production in Chile, La Coypa, and then into Lobo. If all of the satellites at La Coypa come into the mine plan, there could be a potential push out of Lobo Marte, which would not be a bad thing from a capital prioritization point of view. The other thing to keep in mind is that our intent all along has been to synergistically use the two operations together so that certain aspects, for example, of infrastructure or people or fleet or other examples are shared, water being an example.

Okay. Would it be anything where you maybe spread Lobo CapEx over a greater period of time or just simply defer the start?

That's a good question. We haven't got to that level of analysis. In general, you don't want to go slow on a big project that's not efficient, but there may be some early works that come into the plan. For example, at Udansk, we are contemplating early works. So where it makes sense, we might look at that low, but I'd say it's a little bit too early to say that, particularly because we're into a very intense period of permitting activities for the next couple of years, and fixing scope is important.

All right. Well, thanks very much.

Our next question comes from Anita Sonny from CIBC. Please go ahead.

Good morning, everyone. So my first question is, again, with the capital, but can you give us an idea of, given the non-sustaining capital spend that you have, just a general idea about which ones would increase and ramp up in 2022 and which ones would start to come down? I know you've given us an overall 800 million number But I'm just trying to understand which ones may increase and which assets.

I mean, if you look in the rearview mirror, I mean, we've always said to keep eight mines well-maintained around the world, we've been sort of plus or minus the 400-ish sustaining capital number. And I think, you know, again, generally, as we look forward, that's a good base. Anything over that is generally characterized as discretion or gross capital. Again, the further we look out, the more, you know, things are moving around and there's less certainty. But I do think that sort of rule of thumb is a good guideline. Paul?

In that 987 guidance, clearly what's happening is a big project has come off. So TESI's 2124 is a good chunk. in each of the next couple of years. La Coyca is a big part of this current year. And as we get through those two particular projects, we move into a raft of the smaller sustaining type projects. But referring back to the discussion, as we look to green light other potential mine life extensions, those will come in in bigger chunks to potentially drive that capital up.

I get the whole $900 million is to go forward. I know you need to spend to grow and to sustain that growth. But I was just wondering, does this $180 million at La Coypa, is that a similar number next year or it tapers off next year? The West Branch stripping, when does that end? How should we be modeling that and then maybe factoring in anything?

Yeah, at La Coypa, this year is a big capital spend year and it tapers off next year and then we're into production in the middle of 2022. So La Coypa will largely taper off. At TASIUS, unfortunately, the stripping is always a big number. It will vary with the mine plan, but we are going to have on and off big strip years at TASIUS.

Okay. And then in terms of the cost guidance you mentioned production guidance is you know ramping over the course of the year with the second you know particular second half of the 24k done but in terms of costs i'm not sure i can't recall whether or not i saw that but was there a similar sort of like well you know cost should go down over the course of the year or was there or did i recall seeing something about stripping going up as well and so the cost would actually ramp into over the year as well

Yeah, we did note that production goes up throughout the year. Costs also go up throughout the year. And it's just a function, as you said, of higher operating waste in the second half of the year, impacting us throughout the year, but more in the second half of the year.

And then just to follow that conversation on CapEx, is there the typical, I mean, I generally notice that a little less spending in Q1, bulk of spending in Q2, Q3, and then people rushing to spend their budgets in Q4?

Yeah, I mean, we do typically have higher spend in the second half of the year than the first half. So it's fairly even, but that does typically end up happening.

Okay. And then I just wanted to drill down a little bit more specifically on a couple of assets. So firstly, at Terica, too. So I was kind of going through your reserve replacement there, and I noticed that and correct me if I'm wrong, but it's at a lower grade than your reserves. Is that correct? I thought you guys had mentioned that you were getting higher grades at Perica 2, or was that just moving higher grades forward, but the reserve additions were actually slightly lower?

So at Perica 2, we've done a few things. Number one is we've accelerated the stripping rate and also accelerated some of the remining of the tailings. That actually drives the grade a little bit lower in the near term, but that actually increases production when you look at the throughput. The reserve additions at Pericatou were slightly lower, and that was as a result of optimizing some of the tight real estate. So as you get into the outer phase of the Pericatou mine life, you start to run into limitations on the town boundary, on the highway, on the site access road. And it was really about optimizing the real estate and the sequence of the mine plan. So the grade will vary with that sequence, but typically the grades get higher as you go further deep in the west part of the pit, but some of this, I suppose, rind material we pulled into the reserve will be lower grade than that, which is in the deeper part of the west part of the pit. There's probably a lot of detail in there. We can take this offline, Anita. Yeah, sure. There's a lot of great complexity there too.

Yep. And then in terms of the assets where you're doing stripping, is that purely the costs are being impacted by operating strip purely, or is there some little bit lower grade happening as well as, you know, maybe you're using stockpiles or something with the fleet focused on stripping?

So what's happened, and this is a coincidence, and it's planned at each individual site, but it's coincident that it's all happening together. Our three big U.S. sites in Tassius just happen to be shifting from a period where a majority of the stripping is categorized as either sustaining or initial capital to a period of a higher proportion being categorized as operating waste.

Okay.

And that drives upper cash costs. That's the biggest contributor to driving upper cash costs is simply a higher proportion of waste being categorized as OPEX rather than either sustaining or growth OPEX.

Okay, so similar amounts of stuff being moved just in accounting.

That's right, yeah. That's a very good point. I want to reiterate that. Our company-wide mining rate, the total number of tons we move, is largely unchanged. I mean, it'll fluctuate 5% or 8% in a year-to-year basis, but it's not like we're moving an awful lot more tons in 2021 versus 2020. Another small example, and this is going into excruciating detail, but our total re-handled tons are way lower in 2021

they were in 2020 or historically and that also drives a higher proportion of operating waste so it's um it's particulars of individual mine plants all coming together coincidentally to drive a higher proportion okay and then my last question uh pertains to reserve the tazius and tag is sued so i mean now you've got your um you know your license there um when can we expect you guys to start focusing on that i would you know, a lot of sort of excitement about that two or three years ago and then sort of stopped in its tracks. And I'm wondering, you know, where that stands and, you know, when we can expect to see some results from that.

I'll get Jeff to just maybe opine on that. Sure.

Maybe just to clarify, we don't have our license at suit yet. And in fact, you know, that license is contemplated to be issued as part of the ongoing negotiation of our definitive agreements.

Okay.

All right. Thank you. Our next question comes from Tanya Jakusnik from Scotiabank. Please go ahead.

Good morning, everybody. I've got three questions. Maybe I'll start with Tassius. Paul, can we just get what some of the critical milestones are in the next two years to get us to that 23,000 tons a day? This year and next, I guess, would be the most important. And also, do we have everything we need at site? You mentioned a little bit about, you know, long lead time to get things because of COVID. I just wanted to kind of review what you have at site and what needs to still get to site.

Yeah, so from a COVID perspective, it has been very challenging managing this project with availability of people, getting goods to site, logistics, and just the infrastructure required to mobilize a project. Fortunately, we remain on time and on budget, but it hasn't been easy. In terms of the two phases of the project, everything for the 21K project is in place, and we haven't yet placed the orders for the 24K project, but that's something that comes next year and the year after. In terms of key milestones, I mean, there's a lot of them, but the two big ones are the thickeners to get us to 21,000 tons a day, and that's planned for the very late part of this year. And then it's I suppose a high-level way to look at it for the 24K is the power plant. There's a lot of little sub-elements, but the two key elements in the 21 are the thickeners and the power plant for 24. The power plant, I think we talked about this earlier, the power plant, we did take a three-, four-month delay on it, but it wasn't critical path for 21K. It is important for 24K. Okay. But, Tanya, we do have lots of little incremental milestones. So, for example, just last month we commissioned new tailings booster pumps, and we're already seeing enhanced throughput as a result of that. So there's going to be a number of these little micro milestones through the year that will incrementally increase throughput. But the big one will be the thickeners at the end of the year.

Okay, but everything you need for 21 is in place up site?

Yes, yes, yes. Or on the way. I think 80% is there and 20% in transit sort of thing.

Yeah.

And maybe, Paul, just looking at the optionality of the portfolio, and, you know, you've given us, you know, your resources at higher prices. Do you see anything at your mine sites, mainly the pits, where you could, you know, make money today, you know, very little capital and very little time in terms of, you know, bringing ounces, you know, into production that may not have been in mine plans?

Yeah, I'll start and maybe hand off to Paul. I mean, We see those. We're studying those options right now. There's been no decisions, but the overarching sort of philosophy here is if there's a low capital quick payback on something that might be trading dollars at $1,200, but we could get in and out with a really good return, we'd like to understand what those opportunities are.

Yes, and I alluded to that earlier. Obviously, things that are smaller capital, quicker payback, they're going to be more attractive in that environment. One particular example are these Gill satellites at Fort Knox, where if we were in a sustained $1,200 price environment, though they make a buck at that level, they're not particularly attractive, but certainly at $1,500, or especially at spot, they're really attractive. And when these are low-strip, proximal Pretty easy to get. Absolutely, we're looking at them. And the Gill satellites at Fort Knox are a really good example of that. We'll talk a little bit more about those two probably in the first or second quarters. We're just finalizing the studies on that. We've done the resource models, and actually we're just right now live with looking at contract mining for those small pigs. So, yes, we are being opportunistic where it makes sense, where it's low capital and it's a pretty quick turnaround.

Anything at Bald Mountain?

At Bald, we're going through our mine plan. I think at Bald, it's a little bit of a different story. Bald is one where you'd have to look at the entire asset at a higher gold price because there's so many little pits. And you've been to Bald, Ping, and there's a lot of driving there to get around. Bald is the site that would benefit most from a higher reserve price. Let's put it that way. And I think at Bald, it would be a more comprehensive look at the asset rather than small ones. Like Bald, but a little bit different, is Toronto. Toronto is one where mine life extension, I don't want to say is easy at current prices, but because it's an underground and because of the nature of the capital investment required for undergrounds, it's easier to come up with near-term extensions. at Cherano, and though the extension we just made here to 2025 is reserved at $1,200, certainly having gold higher than $1,400 or $1,500 made those decisions much easier.

Okay. I look forward to more information on that. And maybe my final question for Andrea, can you talk a little bit about your tax pools available at TAZ. Yes, we're just trying to get an idea of when you're going to start to pay full corporate income tax based on your current plans and roll price at that asset.

Yeah, I think, you know, I guess first I'd say we do pay a number of – we do pay to the government in ways other than corporate income tax. And we've paid a significant amount over the time that we've been there. But in terms of corporate income tax and our losses, I guess at current gold prices, we would expect to start paying tax on corporate income tax in about 2023. And then obviously at lower gold prices, that pushes out further.

Okay. And anything that were affected by the revised agreement with the government of Mauritania or the new tax code that's in country?

No. That's assuming everything, you know, conforms with the heads of agreement that we announced earlier.

Okay. All right. That's all my questions. Thank you.

Thanks. Our next question comes from Carrie McGrory from Canaccord Genuity. Please go ahead.

Good morning, everyone. Just a question on Tassius. I know it was going to $1,600 resource number. The answer didn't change too much for resources. I know there used to be a lot of answers outside of the pit shell there. Is there still an opportunity to bring a significant amount of those answers in a mine plan at some point?

Yes, there is. A couple of reasons why that resource didn't grow at $1,600 is One is drill density. The mineralization does extend at depth. There's no doubt about that. We just don't have the drill density down there to necessarily pull a substantially larger resource pit. But more than that, as you get down at the depth of Tassius, you're looking at huge strip ratios, so a lot of capital. And when we did the resource calculation here for Tassius, and this is an important point, is we did it assuming an open pit. So in other words, you ran your pit shell at 1600 to see what whether you pull a bigger resource based on drill density. And it didn't. It didn't pull a much bigger pit. But we didn't evaluate the resource potential in this calculation with an underground. And this is why the move to $1,600 is literally just a first step. I mean, as you can imagine, we've been at $1,400 for pretty close to 10 years, so a lot of our drill programs are tailored to that. So there's not a lot of drill density beyond $1,400 or $1,500 pit shells. So as we look at different potential expansions at our mines, we'll have to tailor a drill program to go to tighter spacing, into 1600-year-old pit shells, but more importantly, look at underground potential. And so assets where we have begun engineering work on underground potential are Tassius, Round Mountain, and Phase X. Could Phase X, which is the next phase of W, could that be an underground? And are there underground opportunities at Bolts? So we didn't do that in our year-end resource calculation, but it's something that we are going to start to look at this year. With that $1,600 resource price, is there a different mining method that would yield a bigger resource, particularly those three assets, Tazus, Ron, and Bald? And I suspect the answer is yes, but we need to do the work.

Great, man. Maybe just on Maracanga, there was a big uptick in resources there. Is there any potential that comes back into production over the next three or five years?

Yeah, that was a pleasant, though not wholly unexpected, surprise. Marikunga is actually, one of the reasons it actually grew that big is that its pits are drilled to the current $1,600 pit. So that's one example of an asset where drill density was greater outside the $1,400 pit shell. Our priorities in Chile remain La Coypa, Lobo Marte, but Maricunga is a very interesting asset to inventory or warehouse on a longer-term timeframe. It's not in our immediate plans. We're continuing currently with our care and maintenance there, but we are looking at it as a much longer-dated potential option. But La Coypa and Lobo are the priorities that fall ahead of it. Great. Thank you.

Our next question comes from James Morrison. Please go ahead.

James Morrison Hi. Thanks for taking my call. Thanks for taking my question. I know the near-term goal is to pay down the debt by $500 million later this year in September. But if your cash and your net debt zeroes around that time, is any thought being given to possibly a share buyback program later in the year? the share price being so low, especially in comparison to the peers. Thank you.

Thank you, James. Yeah, look, I think you're right. It's a good point. You know, our capital allocation strategy revolves around the needs of the business, the strength of the balance sheet, and obviously the tone and the commodity. And, you know, all three of those are feeling pretty good. As Andrea has indicated, we anticipate very strong cash flows this year. The notes are a significant non-recurring sort of use of proceeds. But as we continue to get stronger and if the market continues as it is, we'll definitely be giving more thought to how we enhance the return of capital. I think, you know, there's not an official poll, but I guess when we were talking to shareholders over the past couple of years, I think, you know, at the margin, the dividend seemed to be the right place to start in terms of benchmarking against our peers and just the simplicity, I think, that investors were looking for. I personally, I like the concept of a buyback. I like the quantitative aspect. It's a little harder to explain sometimes to people having them understand the But it's something we have talked about. It's something we're thinking about. And it might well be the right thing to add to the dividend if these conditions persist. So it's a good question. It's something we're thinking about. And we'll continue to study that more as we go through the year.

Well, thank you very much. That was my, everyone else asked my other questions. Thank you. Have a great job.

Thanks, James. This concludes the Q&A portion of our call, and I would like to turn it back to Paul Rawlinson for final comments.

Thank you, Carol. Thanks, everyone, for joining us today. We look forward to catching up, hopefully in person at some point later this year, but Thanks for your time, and thank you, operator.

My pleasure. Ladies and gentlemen, this concludes today's conference call. Thank you once again for participating. You may now disconnect.