Kinross Gold Corporation

and thank you for standing by. Welcome to the Kinross Gold Corporation second quarter 2021 results conference call and webcast. At this time, all participants are in 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 one on your telephone. If you require further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Chris Lichtenheld, Vice President of Investor Relations. Please go ahead.

Thank you. Good morning. With us today, we have Paul Rowlinson, President of Freeboro, and the Kinnock Senior Leadership Team, Andrew Freeboro, Paul Tamori, and Jeff Gold. Before we begin, I would like to bring your attention to the fact that we will be making forward-looking statements during this presentation. complete discussion of the risks uncertainties and assumptions the actual results and performance being different from that forward-looking information please refer to page two of this presentation our news release dated july 20 2021 the mg name for the period ended june 30 2021 and our most recently found in the area all of which are available on our website i will now turn the ball put the call over to paul thanks chris and thank you all for joining us today

While there continues to be challenges globally coming out of the pandemic, we are seeing signs of a return to normal across our operations. With the safety and well-being of our people as our top priority, we are maintaining our pandemic related protocols where needed. However, we are also benefiting from a continued return to more efficient operating practices wherever possible. Notably, With travel restrictions easing, we have been able to reach most of our sites more easily. Before turning the call over to Andrea for a financial review and Paul for an operating review, I will comment briefly on the situation at Tassius, our return of capital plan, and some highlights from the quarter. We realize the fire at TASI has created a lot of uncertainty, which negatively impacted our stock price. Our objective today is to provide an update that helps remove this uncertainty. We needed the past several weeks to make mechanical inspections, and based on this, we do not believe there is any substantial damage to the integrity of the mill. As a result, we are confident that we will be operational before year end. Furthermore, our updated estimate for the cost of repair is now reduced to not more than $35 million. And importantly, the gold is still on the ground, and we have an insurance claim for the damages and the interruption to our business. Therefore, we do not see a fundamental change in the value of our business. With respect to the 24K expansion, while the plant is down, we have been able to continue to mine and advance the project. We will begin 2022 with substantially more ore in stockpile, which further secures our ability to meet our production goals in 22 and 23, and now 24. I was recently in Mauritania, and we visited Tassius and met with senior government officials. On July 15th, we signed the final agreement, which provides enhanced certainty on the economics of TASIUS. Achieving this important milestone reinforces our strong partnership with the government. We appreciate, we are appreciative of the strong support from the government, particularly as we work through the impact of the mill fire. We have a high degree of confidence in our strong production growth and increasing free cash flow over the next few years. In addition, the fact that we see no fundamental change in the value of the business, coupled with our recent stock price performance, makes now a highly compelling time to begin the share buyback program that we announced last night. We see the buyback as a meaningful addition to our regular dividend as we are targeting to double the total cash we are allocating to returns over the next 12 months. Moving on to the broader portfolio, we are confident in our ability to meet our revised 21 production guidance and our outlook to 2023, which sees us growing production to 2.9 million ounces. With respect to the cost guidance, the setbacks we faced this year at Tassius and Round Mountain on their own would not have taken us out of our original guidance range. However, combining these setbacks with higher gold prices and inflation has created a need to update our outlook on costs for the year. Importantly, though, our margins remain strong and ahead of our original budget expectations. Andrea will provide more detail on our guidance update in a few moments. Finally, I would like to highlight two other important recent developments. One, we completed a scoping study at Manchot, which confirms the value of the project. And two, we published our 2020 sustainability report which outlines our strong performance and targets in areas of safety and sustainability, environment, social and governance. Along with this, we also released our first climate report, which outlines our climate strategy. Notwithstanding our strong record on safety, which is our first priority, we were recently reminded that our work in this area is never done. I'm saddened to report that in June, we experienced a fatality at our Toronto mine in Ghana. The loss of one of our employees reinforces the need to continue focusing our efforts on enhancing safety and risk management systems across our global operations. I will 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, including highlights on our balance sheet, then provide some commentary on our updated outlook. Production during the quarter was approximately 538,000 ounces and sales were 548,000 ounces. We generated free cash flow of $183 million during the quarter, which was an increase over $100 million from the previous quarter, due largely to lower taxes paid. Cost of sale for $830 per ounce in Q2, which was up from the previous quarter and Q2 of last year due to lower production, higher operating waste mine at a number of our sites as expected, and some inflationary pressures that we're starting to see. Attributable operating margins were robust again in Q2 at 54%, driven largely by strong gold prices. All unsustaining costs of $1,069 per ounce were up compared to the previous quarter and Q2 of last year, primarily due to lower ounces sold and higher cost of sale. Our adjusted net earnings of $157 million and adjusted operating cash flow of $364 million were down approximately 19% and 13%, respectively, from the same quarter last year, also a result of the decrease in production and higher cost of sale. Moving to our balance sheet, our cash position remains strong and we finished the quarter with $676 million of cash after repaying $500 million of senior notes in June. We now have $1.25 billion of senior notes remaining with the next maturity date in March of 2024. Our net debt at the end of the quarter improved to approximately $780 million. Our trailing 12-month net debt to EBITDA ratio improved slightly and is now just under 0.4 times. Our investment-grade credit profile from the three major rating agencies has been further enhanced this year, with Moody's moving us to a positive outlook in Q1, followed by an upgrade from Fitch in Q2. In July, we extended the maturity date of our revolving credit facility to July 2026, returning to a five-year term. Looking ahead to the remainder of the year, as Paul mentioned, we're pleased to have put in place a share buyback program. We expect to begin executing this program in the near future, and based on where we sit today, we would expect to double our return of capital over the next 12 months through this program. In summary, our cash flow remains strong and our balance sheet continues to strengthen. We're well positioned to fund our growth over the next few years while continuing to reduce our debt and increase our return of capital to shareholders. Turning to our updated outlook for 2021, I note that all figures I'll reference here are within our typical confidence range of plus or minus 5%. Starting with cost of sales, we've increased our 2021 guidance from $790 to $830 per ounce. The increase is mainly due to the deferral of low-cost ounces from Tassius and higher gold prices resulting in higher royalty payments, as well as emerging trends in inflation. We have also increased guidance for all-in sustaining costs from $1,025 to $1,110 per ounce. This increases the result of the higher cost of sales and the impact of sustaining CAPEX overhead and other sustaining costs over fewer ounces of production resulting from the Tassius fire. Our guidance for other operating expense is increasing from $150 million to $285 million. The increase is due to three factors. First, the Tassius mill repairs are estimated to be up to $35 million. A portion of this may end up being classified within TAPEX, but for now we've made the allowance within other operating costs. Second, approximately $50 million of non-mining-related operating costs incurred at Tassius during the repair of the mill, including site G&A. And third, approximately $50 million of costs related to the wall remediation effort at Round Mountain. As a reminder, we will be pursuing the recovery of the TAFIUS-related costs as we work through the insurance process. For capital expenditures, we are maintaining our full-year guidance of $900 million. Looking out beyond this year, as Paul mentioned, we're confident in our production outlook of 2.7 and 2.9 million ounces for 2022 and 2023, respectively. With respect to costs, we'd like to provide some context on what we're seeing. At the time of our Q4 release, we had indicated that we expect cost of sales in 2022 to decline and to be largely in line with 2020. Our business remains on track to benefit from higher production, which will favorably influence our per ounce cost metrics, and will continue to monitor inflationary pressures. Some of these inflationary pressures may be temporary and others may not be. As we approach the end of this year and complete our strategic business planning and advance our budget process for 2022, we will be able to provide more details. I'll now turn the call over to Paul Tamori.

Thank you, Andrea. I will provide a brief update on the impact from COVID, followed by an update on our operations, projects, and exploration programs. As Paul mentioned, COVID restrictions are generally lifting around the world, and most of our operations are slowly returning to normal, with some exceptions. Thanks to our employees, operating communities, and host governments, and our operations have performed very well throughout this pandemic. I'll begin by providing an update on the Tassius mill repairs. Most importantly, over the last few days, the mill has been turned, and we are now confident that the gearless motor drive, the trunnion bearings, and the mill shell are in good shape. To note, we've included a link to a video of the mill restart test in our press release. Based on this, we are confident that the mill will restart in the fourth quarter. A new trommel screen has been ordered, and the anticipated delivery date supports the planned mill restart timeline. Following installation of the trommel screen, we expect to be able to resume operations at full capacity essentially right away without a significant ramp-up period. We remain confident in our ability to meet 2022 production targets, as the high-grade stock files that we will build will be available at startup. The 21K project is now 90% complete. Commissioning activities of the power plant have begun and we expect it to be operational in the late part of Q4, and we expect to reach 21,000 tons per day in the first quarter of 2022. Additionally, we are exploring ways to potentially shorten the time needed to reach 24,000 tons per day by taking advantage of mill downtime to advance some of the project tie-ins sooner. Moving to Brazil, Pericatu had a good first half overall. The mine produced 151,000 ounces, an increase of 24,000 over Q1, due primarily to the time advances processed through the mill. Higher cash costs compared with Q1 are attributed principally to an isolated incident of unplanned maintenance, inflationary pressures, particularly on consumables, labour and diesel, and higher power costs due to drought and the governance response restricting hydropower generation, which has resulted in increased exposure to more expensive spot power purchases. On this issue, it's worth noting that while drought conditions are prevalent in effecting power generation, it is not impacting water balance of para-consume. In Russia, Kupol delivered another good quarter. Results were largely in line with Q1 as the transition to narrower vein mining continues to progress as planned. We saw lower grades compared to the previous quarter in Q2 of last year due to planned mine sequencing at Kupol combined with lower grade stockpiles from Devoinine. We expect grades to stay around these levels for the remainder of the year. Turning to Nevada, at Round Mountain, implementation of the revised mine plan is proceeding well, and Q2 production was in line with our expectations. The relocation of the waste pile at the top of the pit continued during the quarter and should be completed next month. Fortunately, this historic waste pile proved to be mineralized, covering the cost of the rehandling. Mitigation efforts have stabilized the wall, and significant progress has been made on further dewatering. The overall optimization study, including opportunities for the Phase S pushback, is progressing well and on schedule to be completed early next year. Production was lower for a quarter as a result of our focus on mitigating the wall instability, while costs were largely in line. Turn to our other operations. Fort Knox performed well during the second quarter, as production increased compared to Q1 due to an increase in ounces recovered from the new Barnes Creek heat bleach. Cash costs remained high due to higher operating waste mines but decreased year over year due to more ounces produced from the new heat leach. Bald mounds production was lower compared to the previous quarter due to the timing of ounces recovered from the heat as we mined through some carbonation material in the vantage pit at the beginning of the quarter. We expect stronger production in the second half. Higher cash costs compared to the previous quarter were due to lower production and higher fuel costs. Toronto has also delivered a good performance so far this year, Production was slightly lower than Q1, mainly due to lower rates from the underground mine, but is largely in line year over year. And the mine continues to generate positive cash flow. Moving on to our project, as Paul mentioned, the Manchester scoping study was completed this quarter on schedule. The results confirm the project was low-risk, low-cost, high-grade, high-return addition to our Fort Knox mine. Many of the key metrics in the study remain comparable to our views at the time of the acquisition, including grades, recoveries, life and mine production of approximately 1 million ounces, with first production expected in 2024. Capital cost estimates, however, have increased by approximately $50 million to approximately $150 million on a 100% basis. The increase is largely due to strategic decisions that are expected to de-risk the project improve operational efficiencies including reducing the use of contractors in addition a better understanding of project site conditions particularly topography and environment contributed to this increased capital the project is moving to an fs and we expect to report those results by the end of 2022. our other projects are advancing well development work on the gill satellite pits located approximately 15 kilometers east of fort knox's proceeding as planned and is on track for first production later this year. La Coypa remains on budget and on track for first production in mid-22, with fleet refurbishments now complete. Pre-stripping, plant refurbishment, and mine road construction are also progressing very well. The Lobo Marte FS is on schedule for completion in Q4 of this year, while permitting and community relations continue to advance. Udinsk PFS is still expected to be completed by year end in support of a reserve update. Infrastructure work at site has commenced, including the establishment of camp facilities. First production units is still anticipated in 2025. With respect to exploration across the company, we continue to focus on promising targets around current operations and areas where existing infrastructure can be leveraged with the goal of extending mine life and adding to our mineral reserve and resource estimates. At Kupel, the exploration program targeting mine life extensions proceeding as planned Targets at the south end of the cupola vein were tested, intersecting narrow but high-grade veins. Importantly, exploration camps were established at Kayamivam and Karelianskaya within the cupola's inner synergy zone, yielding high-grade results in both areas. At Cherano, promising results during the first half of the year were encountered as we continued to target multi-year mine life extensions and additions to its mineral resource estimates at year end. Underground resource Upgrade and definition drilling at Surah and Tano located additional high-grade pods, and underground drilling was carried out at Surah, Akodi South, and Tano, and surface drilling at the Memna West ore bodies. Development of an exploration drift to provide optimized drilling positions to target the Obra high-grade plunging chute is ongoing and is expected to be completed in the third quarter. The results of the first hold exceeded expectations with mineralized width greater than previously interpreted. Drilling at Akadi South has extended known mineralization to the immediate south of the reserve area, while at Tano, two mineralized west plates have been identified. At Udinsk, exploration activities focus on infill drilling and completing the PFS geotechnical work. Additionally, on the larger Chulbakan property, exploration drilling has commenced two to five kilometers to the northeast of the Udinsk resource pit, along the principal Chulbakan fault, where mineralization has been encountered. At Round Mountain, exploration activities at Phase X focus on infill drilling and extending the known mineralization. We also work to improve the geologic model and assess mine planning options with the goal of delineating high-grade material for potential underground mining, and results continue to be encouraging. Lastly, at Curlew, exploration activities continue to target incremental high-margin ounces proximal to the K2 and K5 deposits by constructing a series of exploration drifts to explore the highly prospective area. Rehabilitation development is ahead of schedule with underground drilling to commence in the third quarter and continue well into next year. To wrap up on operations and projects, our priorities continue to be the health and safety of our employees, our social license to operate and the well-being of our communities and stakeholders, delivering strong consistent operating results and delivering our projects on time and on budget. And with that, I'll turn the call back to Paul.

Thanks, Paul. In summary, we are making excellent progress on our key initiatives, and our business remains in a strong position. The Tassius mill is expected to be running in Q4. Despite the setbacks at Tassius and Brown Mountain, we expect both assets to be strongly repositioned for the future. Our investment-grade balance sheet will continue to strengthen as we grow our production of free cash flow over the coming years. And our shares remain highly attractive, and we are initiating a buyback program to capitalize on this. The data operator, I would now like to open up and call to questions.

Thank you. As a reminder, to ask a question, please press star 1 on your telephone keypad. And to enjoy your question, press the penalty. Please stand by while we compile the Q&A roster. Your first question comes from Tyler Langton from J.P. Morgan. Your line is open.

Good morning, and thanks for taking my question. Just on sort of the cash cost guidance for the year, can you provide a little bit more detail on sort of the impact of inflation and higher gold prices on that guidance? And then just, I guess, when you think about the impact of potential inflationary pressures on 2022, is 2021, I guess, benefiting from any fuel hedges or supply contracts that's sort of limiting the impact this year, but could kind of roll off next year?

Sure. So I would look at the increase in cash cost guidance as sort of three buckets. And, you know, roughly a third, a third, a third between the three. So the first is just Not having the tassiest ounces, those were lower-cost ounces, so it's really a function of sales mix. And the second being related to gold price, so we're at a higher gold price than our budget. We're paying higher royalties, and we provided sensitivities on that with our guidance back in February. So we said, you know, $5 an ounce for every $100 in gold price over – over our $1,500 budget price. And so the third bucket would be inflation. And we're just, you know, we're watching the trends in inflation. We've seen some inflation start to creep in just over the last month or two. And so that's sort of the third bucket in terms of how we expect it might impact our cash costs for 2021. To answer your question on hedging, we have hedges in place. For 2021, we'd also have hedging in place for 22 and 23, just at sort of lower levels. So, for example, on fuel, we have, you know, we're about 55% hedged this year, 45% hedged in 2022, and then, you know, lower amount again for 2023. Okay, that's really helpful. And then just...

I guess switching to Round Mountain, I guess production was down, you know, just kind of slightly versus Q1 and costs were actually lower. I guess could you talk just a little bit about, you know, kind of what drove this performance and then just how you think about the second half, you know, in terms of production and costs?

Well, Round Mountain, as you know, we are working through the mitigation plan for the instability that had been detected earlier in the year. First and foremost, we have essentially reduced the risk to a very low number. The wall has stopped moving. We continue our dewatering program. And what we've done at the mine is rather than mining in that phase W, which was originally planned for the year, we've shifted focus to other parts of the operation. So, for example, we're doing another cut at the bottom of the pit where we're developing further at Gold Hill, which is a satellite deposit, as well as a portion of the main pit. So Round Mountain is complex in the sense that it has a lot of sources of ore, and as we continue to unload that north wall, we will continue to rely on these disparate sources of ore. So the various ore sources are going to be within the pit, in the satellite pits, from the heaps, and as I mentioned in my prepared remarks, the waste dump that we moved at the top of the pit proved to be mineralized, and we generated revenue there. But we expect quarterly production at Round Mountain to be in that high 50s range for the next couple quarters, and it'll be roughly at that level going into next year. And as we talked about on our last quarter, the higher annual production has been deferred until 2025. But we expect... round-down production to be in that mid-200s to high-200s over the next couple of years.

And should we expect costs to take a step up in the second half or too early to tell?

Yes. Yeah, costs will step up a little bit in the second half.

Great. That's it for me. Thanks so much.

Your next question comes from Bahad Tariq from Credit Suisse. Your line is open.

Hi, good morning. Just continuing on Round Mountain, the $50 million in the remediation efforts cost, can you talk a little bit about how to reconcile that against the waste pile recovery that you just touched on? And then also, how should we be thinking about that particular cost into 2022? Thanks.

So the overall, I'll paint a high-level picture here. The gross cost additions at Round Mountain are related to moving that waste dump and we will essentially break even on that because it proves to be mineralized, but also laying the wall back to a more shallow slope angle, so that will generate gross additional tonnages in the overall mine plan. However, I'm very confident that we have already and will continue to find offsets to that on an NPV basis, and that doesn't include Phase S, which I'm also increasingly comfortable with. So the gross additional cost of Round Mountain, are not necessarily in-year because our mining capacity is limited, so we're going to mine the same amount every year, but then the result is a deferral of ounces as more waste is moved in the near term. As for the accounting treatment, Andrea will talk about that.

Yeah, really. I mean, as Paul said, we're moving the same amount of ounces. It's just the costs are being characterized as other operating costs given the situation there.

Okay, and on next year's costs, if we think about just like other operating expense related to Rand Mountain?

Yeah, so I think for next year, we're probably going to call that mining costs because the gross additional cost next year will be stripping costs. Mm-hmm.

So, I mean, I'd say just other operating costs overall, the increase that we're seeing that I've talked about this year is really kind of a one-year thing. It's not something we expect to continue in terms of that level of other operating costs going forward.

Understood. Okay. Thank you. That's it for me.

Your next question comes from Josh Wilson from RBC Capital Markets. Your line is open.

Thanks. Just wanted to sort of zone in a bit more on the cost for Toronto and Paraguay, too. For Paraguay, I think you had mentioned that there were, you know, some sort of intermittent downtime items that affected that, but then also some local inflation. And then I just wanted to understand, I guess, you know, where you see costs with these inflationary factors. And then same thing, I guess, for Toronto, where I guess there's a bit – fewer sort of external factors.

Right. So there's a one-time maintenance downtime event on the conveyor, so that impacted the denominator, so that was a contributor to the cost. Perhaps the biggest is the power cost increase. There is widespread drought in Brazil, particularly affecting areas with significant hydroelectric generation capacity. And given the equalization mechanism in the Brazil power market, he ended up having some exposure to the spot price. So the biggest increase in cost parity was related to higher than anticipated power costs. However, I should also point out that that power cost impact would have been much greater had we not owned our own power plants. So we're really happy that we have those plants. In addition, we do see some local... cost inflation. Labour costs are up about 5%, trending a little bit above the annual rate increases we've seen for a number of years. And we're starting to see some inflation in key consumables, of which perfectly uses a lot, for example, most notably grinding media, which is obviously a steel-derived product. As for Toronto, its costs are were high principally due to the relative mix of open pit and underground where we are in the mine sequence. But we expect those costs to improve as we get deeper into the life of mine as we go to a greater share of underground production.

Okay. And then, you know, there's some good commentary on production heading into 2022 and 2023. I'm just wondering on the capital side, you know, on some of the historical guidance provided of 800 and 700 for the next two years, there's obviously a lot of different moving parts here, and even historical numbers were under, you know, question given potential, you know, project growth opportunities. You know, where's the current thinking on the direction of the future capital numbers for 22 and 23?

Sure, maybe I'll take the lead on that one, Josh. Yeah, look, I mean, I think we do see a slightly different dynamic between the operating cost inflation and capital. Operating being more of a sticky kind of lagging with things like labor. There's no question we're starting to see inflation come into the system. We think it'll probably be a little bit greater on the capital side. and um you know i think it's a flow through there's a macro and a micro effect there with with commodity underlying commodities and micro economic supply demand factors um we think it's it's it's certainly here for the balance of the year and into next year um we think in in some cases you know it'll be a little bit greater maybe in the new project side um But we haven't sort of finalized a prediction on what that number will be. But I think the comment we're trying to say is, yeah, absolutely. Those capital numbers that we put out, which were there to support the 2.7 to 2.9 production, now come with an inflation caveat. And we're going to be monitoring that and look to refine our view. So I would say we're biased to obviously increasing inflation. but I don't want to be kind of pinned down on the number just yet.

Okay. And sorry, just to clarify, I think the sort of understanding was kind of flat 900-ish going forward to sustain, you know, the new higher volume outputs. Is sort of the impression that it could be above that sort of flatline expectation or just above what the historical guidance was, which was like it's low?

Yeah, so... I think we've had a few discussions around this point. We were out there with a 987 in terms of capital, which was to support the production guidance of 2.7 going to 2.9, 22, 23. We then said if to the extent we continue, I think that's the point you're making, of continuing to run out at, say, the 2.9 level, we would expect the capital to come back up. towards 900, and we said, you know, a postal code, you know, direction there would be to use a sort of a $300 per ounce kind of assumption. That's how we've characterized it. And I think that's all still true, but we're just trying to understand and get a little bit more focused here on where we might end up with the inflation effect on that.

Josh, we are seeing inflationary impacts in some of our capital estimates. Part of the increase at Manchur was inflation-related. As I alluded to in my prepared remarks, some of it was scope-related, some of it was value-added decision-related, but there was an inflationary component. And we're seeing engineering firms, construction companies bidding projects with higher unit rates than they would have, say, a year ago in recognition of the fact that capital project space is heating up.

Okay, that's very helpful. Thank you very much.

Your next question comes from Anita from CIBC World Markets. Your line is open.

Good morning. Thanks for taking my questions. So first on Perica 2, I think we were looking for higher grades. I think it was from the western portion of the pit. When I look at your guidance for this year, it was saying that part of the drive up to 2.4, 2.7, 2.9 was higher grades at Perica 2. When can we expect to see that?

Well, we're still targeting production around just short of or around 600 this year. We did have some lower grade in the past quarter, as we might in parts of the pit that historically had lower grade. But as we are in that west part in the next quarter, in the fourth quarter, we do expect a slight upward trend in grade, but not huge.

Yeah, where we're talking like 0.37 versus 0.4, right? Is that the variance?

Yes, that's right. Yeah, 0.37 going to 0.4. Yeah, that's right. Okay.

secondly on round mountain um i'm still trying to understand because there's a bit of um back and forth in terms of what the capital spend would be to flatten that slope and when that was going to happen so um in 2022 and 2023 you've got to do this pushback right to basically stabilize that that wall um and i think that when you came back on the last conference call you mentioned that they're kind of mining constraints there so i'm just trying to understand That CapEx spend for, you know, I think it was 30 to 50 million tons that you had mentioned needed to be moved to find that slope. And the timeframe I had assumed was the next two years at whatever dollars per ton cost. I'm just trying to understand, you know, as I think about the capital going into next year, that to me is one of the biggest swing factors outside of your inflation comments. Could you give me some color on that?

Right. So we are doing the mine plan redesign right now. We haven't finalized the slopes. We put in the dewatering wells in the last quarter. Poor pressures are coming down. And we are finalizing the geotech design. So the total quantum of tons is not yet finalized. But you're correct in the assumption that principally the moving of those tons will take place over the next two years. And we are mining constraint. Round Mound does about 100 million tons a year. So instead of, and this is the principal reason for the push out on the phase W ounces, instead of mining a certain proportion of waste in ore, it's now greater proportion of waste within that 100 million constraint. So we will work through that excess in the next two years. And the total quantum of tons, I can't tell you exactly what it'll be right now, but it's likely at the upper end of that range you talked about.

Okay. And then my last question, I'll pass it off to other people. Just trying to understand TASIUS at this stage. So I would assume prior to the fire, you guys, you know, that happened in the last couple of weeks, you were... you know, a little behind on the stripping and access in the higher grade ores. That's why we saw this, you know, lower grade coming through this quarter and some portion of that would then also have been, I guess, stockpiles feeding the mill. How are you doing now with this sort of dealing with the fire and trying to get back up and restarted? How are the mining rates in the last month and, I guess, five weeks going? Because I guess we're contingent upon you. One of the things that you had mentioned was that you would get ahead or get caught up on your stripping so that you could access those higher-grade ores that were expected to drive, I guess, plus 2 gram per ton material next year.

That's right. So we continue to mine. So the mine was down for maybe two days at the time of the fire, but we're back up to the mining rate that we need. And what's happening right now is principally waste movement and building, at this point today, medium-grade stockpiles. As planned, we're going to get into the higher-grade portion in the fourth quarter, and those are going to be stockpiled as well during the mill rebuild. So, in effect, what's happening is at the start of January 2022, we expect to have the mill running full tilt. We expect to be mining run-of-mine high-grade material in addition to having a couple months' worth of high-grade stockpile on the ground. Now, the grade in that stockpile is not so high that it'll displace what we would have mined from high-grade next year anyway. but it does provide a de-risking element in that it allows some flexibility on mining rate next year. So short story is this mill downtime provides the silver lining opportunity to get caught up on the mine plan, get back into a position where we're mining West Branch 4 high grades, and then de-risking next year's production profile with the availability of stockpile material.

And those West Branch high grades, they were north of 2.5 gram per ton material, right? Is that correct?

Yes.

Okay. And then I had one last question. Sorry. Just with the Q4 guidance that you'll be starting up sometime in Q4, could you provide just, I apologize to ask this question, but could you provide some clarity? Because Q4 is a pretty big window. And is it early Q4, late Q4 for the restart? Or is it just near the end of the year kind of thing?

Well, I'll describe what exactly is happening. So we've turned the mill, we've done the integrity checks on the mill, the motor, the trunnions, and other associated key components. In general, the big important things are okay. There's been damage to some ancillary things like the intake and the discharge chutes, some structural work on the cyclone tower. And working backwards, the thing that needs to be replaced and it drives the critical path to return to production is the trommel screens. We place an order, and we expect to have that arrive at site, call it late October, early November. So it doesn't get better than that. That is the critical path. And it will depend on the installation time, which we envisage it will be about two weeks. So it's not inconceivable that that mill is turning with the new trauma screen sometime in November. In a best-case scenario, we'd have a, a good production month in December, but our revised guidance assumes no production this year. And we would strive to try to beat that, but right now we're assuming full-fledged 100% throughput startup January 1st with an upside towards some production in December.

Okay, thank you. That's it for my questions.

Again, to ask a question, please press star 1 on your telephone keypad. Your next question comes from Mike Parton from National Bank Financial. Your line is open.

Hi, guys. Just a couple questions left. The other operating expense, we've got guidance for this year. How do you see that trending as we go into 2022, if you can give color on that yet?

I guess, Mike, I'd say, first of all, it's by the nature of those costs are difficult to predict, but the increase that I talked about in my remarks for this year is sort of a one-time thing. There's not something we'd expect to repeat next year. So there's no reason to expect at this point that next year wouldn't be back to what we've seen the last year prior to 2021.

And then just one final question. Congrats on signing that agreement with the Mauritanian government. Can you just give us a bit of color, you know, where the sticking point was on Tassie's suit and why that was excluded to get the main part signed off and where the kind of negotiations still sit with Tassie's suit?

Sure. I'll hand it off to Jeff here, who was, you know, intimately involved in that whole process. But, uh, Our focus and priority always was to get the main event, which is the Tassius Mine, buttoned down, and we're very glad we've done that. As it relates to Sue, Jeff, maybe to – Sure.

Yeah, yeah, that's right, Paul. And, Mike, I guess what I would say is – Our previous arrangements on Sue contemplated a different approach and ownership structure than the main agreement on Tassius. It was delaying our negotiations, so excluding it was a catalyst for signing the agreement and banking the main economic event at Tassius, as Paul just said. I would say that with the main agreement now signed and behind us, the door is wide open with the government to find solutions on SUDE and discussions will certainly continue. And I guess, you know, the last thing I would say is that, you know, while SUDE is perspective, it's not material at this time. And certainly both the main tastiest and northern properties that we own remain perspective. Okay.

That's it for me, guys. Thanks very much.

Your next question comes from Tanya from Scotiabank.

Your line is open. Great. Good morning, everybody, and congratulations on getting that Tassius Mel startup, I guess, startup, getting it on track for startup in Q4. Just two questions. I'd like to start with Paul T. Just coming back to that inflation question, both from capital and operating costs, can we just go through in your cost structure? You mentioned labor, specifically labor in Canada. In Brazil, are you seeing labor inflation in the U.S. and or Russia and maybe some of the other consumables where you're seeing inflationary pressures on your cost first and then coming back to your capital? I have some more questions on that.

Okay, I'll walk through the cost bar for operating expenses. In the labor area, we are seeing cost increases that are only modestly higher than historical trends, principally in Brazil. And we're starting to see it pick up in the U.S. and Russia. And what I'm saying here is it's, say, 3% instead of 2% or 4% instead of 3%. So it remains somewhat tame, but in Brazil it is something we are focused on. We are definitively seeing labor cost inflation in Brazil. What we are seeing in the U.S. and also in parts of... in South America is labor availability, and that will drive up labor costs down the road if there isn't a normalization on that labor availability trend. In terms of consumables, WTI is what it is. You can do that calculation yourself on a net of hedge basis. We provide information on the degree of our hedging. The other consumables where we're starting to see, especially more recently, an uptick in inflation are key things like grinding steel, cyanide, explosives. And importantly, for example, in areas like cyanide and explosives, we're seeing 10% increases that are principally going to be impacting Q3 and Q4 year-to-date. The numbers there have been more tame, 2% or 3% or 4%. But as we work through some of those lower-cost inventories, we're now getting into material that's 10% to 12% higher in cost on the chemical chain, so cyanide, explosives, and reagents. In the case of grinding media, particularly at the large mills like Tassie Spare 2 and Fort Knox, we're seeing pretty significant increases, 30% certainly looking at the next two months. And again, it's been more tame in the first two quarters as we work through the inventories, but there we're seeing about 30% going forward. And then the last part of costs is the big maintenance category, both on services and spares. There is probably where we see the lowest pressure as yet. And so I think when you put it all together, we're probably seeing, as Andrea said in her remarks, about a third of the cash cost revision upward is due to the inflation component. So it's been manageable in the first half, but here in May and June and heading into July and August, we do see inflation picking up into the back half of the year on OPEX.

But inflation itself wouldn't have taken us out of our original car.

That's right, yeah.

Just for overall context.

Yes, had it only been inflation, we would have been at the top end of our cash cost range.

The third of, you know, 40 bucks an ounce is 12 bucks. So, yeah, no, I got that. Maybe on just the capital cost, it seems as though you mentioned, Paul, that the inflationary pressures are more on contractors and And firms, it doesn't seem as though there's specific issues or labor within that component that has you focused on. Or maybe just a bit more clarity there.

Yeah, so in CapEx, we probably see more inflation or the risk of greater inflation than in OpEx because we're supposed to vote the monetary side of inflation. In other words, the price of individual inputs going up. but also tightness in the supply chain itself. So limited number of fabricators of value-added equipment, limited pool of construction and engineering. And as I said earlier, we are seeing them bid projects with higher pricing than even six months ago or a year ago. So as a result of both the monetary side, in other words, price inflation on straight-up commodities, we're also seeing that value-add supply-demand tightness And as I said earlier with reference to Manchot, we are seeing 10% to 15% inflation related to capital estimates on growth projects, which is higher than what we're seeing on the OPEC side.

Great. Well, that's good color on that. And then maybe just for Paul Rollinson, congratulations on the share buyback. Notice on the slide that you have $150 million coming from dividends and $150 from the share buyback. Is that $150 from the share buyback a minimum? And also, what would you need to see to go beyond that $150?

Sure. Thanks, Tanya. Yeah, look... That's certainly how we're looking at it. It's a start. I mean, the way I look at it, our intention was always to get into a buyback situation at this point in the year. Then we had the setback with Tassius, and as you know, as a result, we'll be deferring production and cash flow. So we're going to be down cash flow from where we thought we were, going to be pre-fire. Notwithstanding that, we're continuing on with this buyback, and I think that doubly sort of underscores our confidence in the business. When we look at the 150 we've established as a sort of a baseline forever with the dividend, it seemed to us a reasonable starting point given the scenario we're in right now. would be to double, target to double that 150 to 300. We're on track. There's nothing operationally that we're looking at. I guess if I were to rewind a couple of weeks, if, you know, we were 90% confident we'd end up where we are today a few weeks ago when we gave a middle fire update. If we were wrong, if we were in the 10% category, and it would have been longer than fourth quarter perhaps, that might have impacted our thinking around a buyback, but it has played out as we predicted. And so there's nothing operationally that would prevent us from continuing with this buyback. You know, it's a target. We've tried to give some color. I think a lot of people tend to put out 5% NCIBs and, you know, Who knows what happens? We've tried to be very specific, and you should hold us accountable for that number. Could it be higher? Sure. We'll see how the world goes from here.

Great. Thank you. There is no further questions this time. I would now like to turn it over to Mr. Paul Rollinson. Great.

Thanks, operator. Thank you, everyone, and thanks for joining us this morning. We look forward to catching up in person, hopefully, late at the end of the tunnel in the coming weeks and months. Thank you.

This concludes today's conference call. Thank you all for joining. You may now disconnect.