Kinross Gold Corporation

Hello and welcome to the Ken Ross Gold Corporation third quarter 2021 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. I would now like to turn the call over to Mr. Chris Lickenheff, Vice President, Investor Relations. Please go ahead, sir.

Thank you, and good morning. With us today, we have Paul Rollington, President and CEO, and from the Kinross Senior Leadership Team, Andrea Fribero, Paul Tamari, Jeff Gold, Before we begin, I would like to bring your attention to the fact we will 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 2 of this presentation, our news release dated November 10, 2021, the MD&A for the period ended September 30, 2021, and our most recently filed AIS, all of which are available on our website. I will now turn the call over to Paul.

Thanks, Chris, and thank you all for joining us today. We are pleased with how our portfolio is positioned today and our outlook going into next year. Reflecting back on the five months since the fire at Tassius, I'm pleased to report that the mill is back up and running, the expansion project remains on track, and we expect to have built high-grade stockpiles by year end. Despite TASIUS having recovered, our market value is still significantly lower than it was before the fire. To the extent a portion of this may be caused by lingering concerns around TASIUS, today we hope to alleviate those concerns. The restart of TASIUS combined with the La Coypa project and strong performance from our broader portfolio puts us in an excellent position to grow production and free cash flow over the coming years. Turning to the third quarter, results were in line with our expectations, and I'm encouraged to see signs of a continued return to normal across our operations, including a return to the Toronto office. Before turning the call over to Andrea for a financial review and Paul for some operating highlights, I'll discuss some additional detail on TASIUS the results from our studies on the Udinsk and Lobomarte projects, and some highlights from the quarter. At TASIUS, thanks to the excellent work by our team, the mill repairs were completed at a cost lower than earlier estimates, and we are on schedule to ramp up and reach throughput of 21,000 tons per day by the end of Q1-22. Over the next few weeks, we will be focused on getting MILF throughput back to levels comparable to the first half of the year. Moving on to our projects, yesterday we released study results for two of our key growth projects, which in both cases largely confirmed our previous views. The pre-feasibility study for UDINSC reaffirms this is a low-risk, high-return project extending our presence in Russia. We are now working on a feasibility study, which we plan to complete next year, after which we expect to make a formal construction decision. We continue to expect that UDEMS will be the first mine on our Chalbacan land package, and we are targeting first production in late 2025. Turning now to Lobo Marte, The feasibility study reaffirms all of the project's key parameters. Lobo Marte continues to offer long-term growth optionality as our potential next mine in Chile after La Coypa. Moving now to third quarter results. Our operations tracked well against our expectations, notwithstanding the challenging environment as the world works to come out of the pandemic. We remain on plan to meet our 2021 guidance, and we are well positioned to deliver our production and cash flow growth over the coming years. While our production growth and related cost efficiencies are expected to drive our cash flow higher, we are also facing inflationary pressures, which will offset some of this. Andrea will provide more detail on this in a few moments. On capital returns, last quarter we announced our share buyback program with the intention of spending roughly $150 million over the following 12 months. I'm pleased to report that to date we have spent $50 million repurchasing our stock and are well on track with our plan. We continue to view our shares as extremely attractive and are pleased to be able to repurchase at these levels. Finally, I would like to provide an update on the progress we've made with respect to ESG. We established an ESG executive committee that will report to our board on a quarterly basis to further enhance our initiatives. In addition, we are working to develop a roadmap that will support our greenhouse gas reduction targets for 2030. We expect to complete this assessment and provide detail around our targets with our year-end results. I'll now turn the call over to Andrea for a more detailed review of financial results.

Thanks, Paul. I'll summarize our financial results from the quarter, provide some comments on inflation and how we expect it may impact our business, and then provide an update on our balance sheet. Production during the quarter was approximately 483,000 ounces, with sales slightly lower at 478,000 ounces. The decrease in production from last quarter was expected and was mainly due to Cassius being down as a result of repairs to the mill. Cost of sales of $870 per ounce in Q3 was up from the previous quarter due to lower production and increasing inflationary pressure. All-in sustaining costs of $1,225 per ounce was up compared to the previous quarter due to higher cost of sales and higher sustaining capex. The increase in both cost metrics was expected, and we remain on track to meet our revised guidance for the year. Attributable operating margins remained strong in Q3 at 51%, driven largely by strong gold prices. However, as previously indicated, inflation is impacting our results. We're currently seeing inflation in the range of 3% to 5% in the second half of this year, which we incorporated into our revised cost guidance last quarter. Looking ahead, as the price of key inputs remains elevated, we expect inflationary pressure on our operating costs in the range of 5% to 7% going forward. Having said this, our per ounce cost metrics next year are still expected to benefit from higher production. Higher commodity prices combined with tightening labor markets specifically in specialized contract labor such as engineering services, and increased global demand for mining equipment are also expected to contribute to higher CapEx next year. We're going through our budgeting process now, and we'll be in a position to provide more specific cost guidance with our annual results in February. Moving to our balance sheet, our cash position decreased slightly from the previous quarter as expected, and we finished the quarter with $586 million of cash. We generated free cash flow of $39 million during the quarter, which was a decrease from the previous quarter due largely to the absence of production at Cassius, while still spending on mining and repairs. Looking ahead to the next quarter, Q4 CapEx is expected to be the highest of the year, and we expect to be within our guidance range for the year. Also during the fourth quarter, we expect to make a one-time payment of $50 million related to a normal course settlement of prior year taxes. Our net debt at the end of the quarter was $860 million, and our trailing 12-month net debt to EBITDA ratio increased slightly and is just under 0.5 times. As Paul mentioned, to date we've spent approximately $50 million on share repurchases, $32 million of which was during the quarter. This puts us on track to return approximately $300 million through dividends and buybacks from mid-2021 to mid-2022. Finally, we're well positioned to further strengthen our balance sheet next year as our production and free cash flow ramp up. I'll now turn the call over to Paul Tamori.

Thank you, Andrea. Today, rather than a detailed review of each operation, I'm going to discuss a few key highlights, and we'll be happy to take questions. At TASIUS, as Paul mentioned, the mill is up and running. The new trauma screen and other key items arrived on site as scheduled and were installed last month. The mill is periodically achieving pre-fire throughput rates as planned, and we are in the process of ramping up and expect to achieve these levels on a sustained basis with the goal of achieving full production rates, throughput rates in December. While the mill is being fed ore ahead of schedule, we've elected to use lower-grade ore during the ramp-up period, so the initial production will be modest. Furthermore, during this initial period, we're replenishing inventory on carbon following its depletion in the weeks after the fire. All told, we expect to produce approximately 15,000 ounces during the fourth quarter, and most importantly, exit the year with throughput rates of around 18,000 tonnes per day. We are on track initially with the project to hit 21,000 tons per day by the end of the first quarter. I'm also pleased to say that the mill repair costs of approximately $20 million were considerably lower than our initial estimates. Mining activities at TASIUS continued through the quarter, and as Paul mentioned, by the end of the year, we expect to have built high-grade stockpiles. Mining rates during the quarter were lower than initially anticipated as a result of challenges in drilling and blasting. However, these issues are being addressed, and we remain on track to achieve strong production strategies next year in line with our technical report and our studies. The 24K project is also progressing as planned with completion expected in mid-23. Moving to Round Mountain, the optimization study, which includes Phase S, is on schedule, and we expect it to be completed in the first half of next year. The geotech work is advancing well and will provide the data needed to make conclusive decisions the ultimate slope angle, as well as any needed step outs or berms. And to date, the study is not presenting any significant surprises. In the quarter, we also completed the relocation of the waste pile from the top of the pit to further stabilize the wall. Moving to the results of the Udinsk PFS. This study confirms the project's expected strong returns. The conclusion of the PFS in combination with more than 55,000 meters of infill and geotech drilling has allowed us to convert approximately 3 million ounces from resources to reserves. Most of the study outcomes are in line with the assumptions at the time of the acquisition, with some improvements in recovery and production. CapEx, however, has increased by approximately $150 million, broken down roughly as follows in thirds. First third approximately from inflation. Another third is from value-added decisions that have improved the MPV but come with an added capital cost, for example. a finer crush for better recovery, and finally, a third from scope changes including earthworks and camp facilities, which were more costly than initially anticipated. As Paul mentioned, we also completed the FS on Lobo Marte. The study confirmed the project's key parameters. Pit optimization work and infill drilling completed over the past two years resulted in an increase of Lobo Marte's reserves by approximately 300,000 ounces into its resources, by $600,000 as is compared to the PFS. The estimate for initial capital increased by approximately 8% compared to the previous study, but mostly due to the reclassification of certain plant elements from sustaining to initial. As such, the NPV is in line. We completed the study with key environmental and community considerations as part of the project design and continue to advance the EIA submission. Lower Marte will now enter a lengthy permitting phase, which we expect will take three years. Construction decision will not be made until after that, with construction beginning no earlier than 2025. Mining at Lobo Marte will not begin until permitting has concluded, and we've completed mining at La Coipa, as the two sites currently plan to use the same water source. We continue to see further potential to extend La Coipa by bringing satellite deposits into the mine plan, and we've made significant progress on that. Therefore, we may ultimately push out Lobo Marte to accommodate more production at La Coipa, which would allow us to further leverage our capital investments in Chile and to extend our overall production profile in that country. And with that, I'll turn it back to Paul.

Thanks, Paul. I'll just wrap up by reiterating that production at Tassius has resumed, and our operations are in excellent shape going into next year. Our balance sheet is strong, and we continue returning capital to shareholders through dividends and buybacks, and our production pipeline continues to grow rapidly. as we advance our projects and position our company for long-term success. With that, operator, I would now like to open up the call to questions.

At this time, I would like to remind everyone, if you would like to ask a question, please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Tyler Langston with JP Morgan.

Good morning. Thanks for taking my questions. I guess just to start, for the Udansk and Lobomardi studies, could you just provide some details on the sort of the level of cost you're using for both capex and operating costs? And are you using more sort of current prices in those estimates or some sort of historical average or sort of normalized range?

We're using current prices. So in the case of capital estimates, they're based on submissions from contractors and equipment suppliers. In the case of UDINF, those are clearly nearer in time. As for operating costs, we are using current costs. And in other words, the inflationary impacts that have been seen over the last year have been incorporated into that.

Okay, perfect. So if inflation is more temporary, then we definitely see a reduction potentially in those items.

Well, I certainly hope you're right on that. But as I said, as you did, a full third of the capital cost increase was due to inflation. So if inflation abates and prices drop, then, yes, we could see that. But I don't anticipate that.

Right. And I guess the same is true for operating costs, too, if sort of inflation increases. Absolutely. Okay.

Yeah, operating costs are more – yeah, that's right. You're correct.

Okay. Perfect. And then just a tackiest – And you mentioned you're on track to reach the 24K by mid-2023. Could you just remind us sort of key milestones between now and then and if there's a capital left to be spent, just sort of details along those lines?

Yeah, so we're looking at about $30 million to $40 million of capital in that program to get from 21 to 24. And it's a lot of incremental de-bottlenecking. So we're looking at additions to the screening capacity on the downstream side of the sag mill itself. There's a fair amount of work in the leach train with launders and interstage screens, the addition of tanks. So it's a lot of incremental little deep bottlenecking type work. And as you said, we're ramping up to 24 in the plan in the middle of 23. Got it. Perfect.

That's it for me. Thanks so much.

Thank you.

Your next question comes from the line for Rod Tariq with Credit Suisse.

Hi, good morning. Thanks for taking my questions. Maybe first on 2022 cash costs. So you mentioned that on the inflation side, maybe 5% to 7%, but then maybe some offsets from the higher production. So I'm just trying to get a sense of Like, how should we be thinking about next year's cost relative to the $830 announced cash cost guidance for this year?

Well, thanks. I would just remind, we're still in our budgeting cycle. We do provide our cost guidance explicitly when we get into mid-February with reporting the year end. But it is a numerator-denominator effect with higher production. We do expect the cost to go down. But, Andrea, do you want to just maybe make a comment there?

Sure. So, you know, we did – I guess going back, we did telegraph that next year costs would be coming down. That's sort of the tailwind. The headwind is obviously inflation. So, you know, I think we still do expect that costs for 2022 will be lower than 2021, but just not as low as we previously expected. So – And that's, as Paul said, coming from the growth in production and that growth coming, you know, mostly from Tassius and LaCroix, which are lower-cost operations.

And I would just remind, we do, for revenue assumptions, use $1,500. Obviously, we're trying to – that's below where we've been recently with spot, but it's closer in terms of anticipating taxes and royalties.

Okay, great. And maybe just switching gears, on Perica 2, there was some commentary in the MVNA about temporary grade variability. Can you just talk a little bit about what happened there in the quarter? Because the grades were quite a bit lower than I was expecting, at least. And maybe how to think about Q4? Thanks.

Yeah, so Perica 2, if you look at the long run, and I'm talking over years, depending on where we are in the mind sequence, certain parts of the pit behave better than others. And in this past quarter, we were mining at edges of the pit, which historically are more difficult to predict the grade. As we head into the last quarter, but particularly next year, we're going to get into the more reliable 0.4 grade scenario. So it's a temporary effect, which is not out of line with what we've seen over long-run performance on grade at target two.

Okay, great. That's it for me. Thanks.

Your next question comes from the line of Anita Soni with CIBC World Markets.

Good morning. Thanks for taking my call. I just have a question with respect to the mining rates at Tavius. Can you give us an update on how you're doing on the stripping? I think you'd mentioned previously that you'd have to catch up on that in order to get the grades for 2022.

Yeah, thanks, Anita. So we still expect to hit the grades for next year, most importantly. We have had challenges in the mining rate. We have accumulated probably a 35 million ton shortfall over the last two years. You'll remember the story. It was more acute last year due to COVID restrictions and quarantines. So we fell about 27, 28 million tons behind last year. This year, we struggled to ramp up to the full run rate. But it's not as bad as it was last year. We've lost about six or seven million tons this year. However, those are both within the buffer we have on access to the higher grade material in West Branch 4. So by the end of this year, we will be stockpiling higher grades, and we don't anticipate an impact to next year's production. We will be in line with the technical report to potentially slightly beating it. Okay.

And then in terms of Round Mountain, could you remind me what the costs that, so I guess the costs that were excluded this quarter were a little higher than I was expecting. So could you remind me, where are we on that, the ultimate number that you thought that you were going to exclude for this year out of your cost? And, you know, how much more is there to go in Q4? And also remind me of the treatment of it next year. I'm just a little, a lot of stuff flying out of this quarter.

So, Anita, I'll describe the physical situation, and Andrea will talk about the cost treatment. So we've completed a lot of geotech work, which includes installation of dewatering wells, some pretty detailed analysis on modeling the pit walls. And we've come up with a pretty confident number of where we're going to land on the pit walls. So we've been able to steepen them a little bit from the last time we talked. We have moved that waste dump that was on that wall that needs to be laid back, and we're now mining waste down below that as we soften the slopes. And our total estimate for net mining over and above what had been anticipated is still in that $50 to $60 million – sorry, $60 million ton range. And we're working on that plan. And as to cost treatment, Andrea, what do you know?

So, yeah, Anita, we did – you'll see, I think, about $43 million of costs related to Round Mountain that were sort of adjusted out as abnormal costs. There's, you know – not a little bit more coming in Q4, but I think we guided around 50 million for that, and we'll be within that number.

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

The next question comes from the line of Kerry McRory with Kenna Court.

Hey, good morning, everyone. Just a question on 2022. Just given all the moving parts in 2021, can you just remind us of sort of where the growth is coming from in 2022 outside obviously of Tassia's?

So TASI is ramping up to that 6 to 650 range, as I said, in line with the TR. That's the big one. And we're still targeting about 200 from La Coypa next year, and that's obviously production where there wasn't production before. Those are the two key components. But we're also seeing a nice number at Fort Knox in the 300-plus range. So those are the principal contributors, TASI, La Coypa, and a little bit of Fort Knox.

And the timing out of La Coypa again?

Mid-year, the project is going really well. We're ahead of plan on stripping. Mill refurbishment is going well, and I'm happy to say that our capital costs there have been trending under our budget. So we're in good shape at La Coypa, and I would be targeting mid-year on first production. As I said, around 200 plus minus next year.

And then maybe just on Cassius, you mentioned the exit rate of over 18,000 tons a day. Where's the mill currently at?

We've been achieving 80% to 90% of what we'd like. We just need to get that on a sustained basis. And the target is to exit the year at that 18, 19. But we've been doing, say, 14, 15, 16 as we get the mill back up and running. One of the reasons that the – the refurbishment cost less than initially anticipated, that the mill ended up being in better condition than we had initially feared. And that, of course, translates into good operating performance as we're back up and running.

Great, thanks.

Your next question comes from the line of Mike Parkin with National Bank Financial.

Thanks, guys, for taking my question. Congrats on a good quarter and looking forward to 2022. Just a couple questions for me, most have been answered. With Paracatu, I know costs have been a bit elevated for power because of the water situation there and sources. Can you just give us an update on where that kind of stands now? Yeah, so in Brazil, we do own power plants which serve most of our needs. However, there's a market stabilization mechanism in Paracatu that even when you own your own power, you contribute to the overall grid, so you do take a hit when there's drought. So what's happening in Brazil is there's been broad drought conditions that have led to shortages in hydroelectric power. In fact, it's the worst year since the 1930s. And so as a result of that, we're paying higher power costs, and we expect that to continue in the near term. But the important point here is that our power costs would have been much higher if it weren't for the fact that we own these hydro dams So we are really happy that we have these. And I should also add that this drought, which is impacting hydroelectricity across the country, is not impacting us in Minas Gerais, where the site water balances remain healthy. Okay, that's great. And then with you, Vince, the exploration potential you kind of indicated in the past is quite interesting and compelling. There's a kind of high-grade structure going through the pit. Can you just give us an idea of where you are in terms of following up on potential stepping out of the pit shell and checking for continuation of that trend and when we can expect kind of colour and updates on that program? Yeah, so the focus, as you know, over the last year has been on the infill program, and we're really happy to report that the resource is in good shape. We've begun over the last... few months, the first field season. And what we're doing is we're looking at targets along strike on the Chubut County fault there, as well as depth extensions, principally northeast and southwest. So what I would guide you towards is with our exploration update that we typically do in February, you'll be seeing a little bit more detail on the results of these programs that are really focused on areas outside that principal UDINSC reserve. That's great. Thanks very much, guys.

Your next question comes from the line of Greg Barnes with TD Securities.

Thank you. You seem to be hedging your bets a little bit on Lobo. Is it the lower return? Is it the permitting issues? Or just perhaps you're hopeful another project steps into the pipeline ahead of it? Why are you a little bit cautious around that one?

Well, I think, I mean, the key point there is, you know, the results of being reaffirmed. What we expected is exactly how the study came out. I don't know that we're hedging our bets. We're really just, again, looking at this as a linear transition from La Coypa over to Lobo. We do have in front of us a lengthy permitting process. We just want to take the time to make sure we do the very best we can to but we're not in a rush to try to get Lobo up and running. In fact, there's a reasonable chance we continue to extend La Coypa, and Lobo may get pushed out perhaps a year or two.

And, Greg, the bet hedging that you're talking about really relates to, let me just compare Udinsk and Lobo Marte. In the case of Udinsk, a lot of the permitting work can be done concurrently to engineering, and we anticipate having those permits in hand when we make a construction decision. In fact, at UDINSC, we're even looking at potentially doing some early work on capital investment next year. In the case of Lobo Marte, we have to get the engineering to quite an advanced level in order to even begin the permitting process. So whereas at UDINSC, it's a parallel process, at Lobo Marte, it's very much a serial process where we have to have advanced engineering. And then we go into a a very involved EIA process, which will take two years, followed by sectoral permits. So the bed hedging is really about the complexity and the very long time period to get projects over the line on the permitting side in Chile.

What about the water issues in the area? I believe there's some hope you could connect La Cuepa and Lobo on that front, but I know you've had issues with water in Chile historically.

Well, I think water is a sensitive topic in Chile and region three in the Atacama. But again, I would remind that we have permitted wells that are pumping water ready to go. They are pumping today at La Coypa. And part of our strategy here, we've shown it in a couple of maps and different slides. Interestingly, the water wells are physically located closer to Lobo than they are to La Coypa. So, you know, part of our strategy here is to look at pumping water in the other direction. You know, the water we have dedicated to currently to La Coypa turning around and pumping it the other direction to Lobo, which is closer. Right.

So you're not concerned in that front, necessarily? You don't see that as a potential hurdle in the currency?

Look, I think Permitting is always very important. It's something we take very seriously, and particularly in Region 3, we know water is a sensitive topic.

Greg, water is foremost on our list of things to look at through this permitting process. Kinross, we look at our Chilean assets with a long-term view. We have a big resource still in the books at Maricunga, We have a very large reserve here at Lobo Marte, and we see increasing potential at La Coype. All of these are subject to difficult permitting environment. But we've started to look at what does a bigger strategy potentially look like for Chile. There are commercial options, for example, on desalination. Would we ever take the lead on a desalination project if we had larger inventories? These are all conceptual things we're looking at right now, in addition to the straight-line permit on water use from the La Cueva well. So the base case is the La Cueva well situation, but we're also looking at conceptual other studies for options that may serve not only Lobo, but also some of our other assets and potentially even further afield. So there, there's a parallel track. Okay, gotcha. That's great. Thank you.

Your next question comes from the line of Tanya Dekusinek with Scotiabank.

Great. Good morning, everyone. Thank you for taking my questions. Just wanted to come back with Paul Tamori, just back to Tavius and LaCroix. Can you remind me, just on the stockpile at Tavius, what are we going to have by year-end and what rates, just so that we know what sort of buffer we have?

Yeah, we're targeting 60,000 to 70,000 assets in the stockpile at 2.5%.

Okay. Thank you for that. And then when you were down with the mill, is there any buffer time that you've gained time-wise for, you know, thinking in some of your other portions of the mill that we have a bit of a buffer? Have you gained any time on that to get to 24?

So as you know, Tanya, this is something we've been talking about. We continue to look at those opportunities. We haven't moved off our mid-23 timeline. The priority right now has been the 21K and the rebuild of the sag mill. Our engineering teams continue to look for those opportunities, but we're not yet ready to move off that mid-23 date.

I appreciate that. I just wanted to understand if there was a bit of a buffer in there.

If we had a buffer in the system, it was on the ramp-up timing to 21. So you might ask, we've moved our timing on 21K ramp-up to the end of Q1, and we haven't adjusted our numbers. we probably had a little bit of a buffer there.

Okay. And then maybe just, thank you, maybe just coming back to La Cueca, just reading, just listening to, you know, what you're finding there, and then this continues into my reserve and resource question. It appears that, you know, Paul had mentioned that maybe we are able to gain another one or two years of additional mine life before pushing out Lobo Marte about that amount of time. Is there anything else that you're finding in the region that would make you think it would be beyond one or two years?

Yes, definitely. There's four or five deposits or phases of deposits that we're looking at bringing to the plan over and above what's in the current plan. The first step is a joint venture agreement with Codelco, and that's a multi-phase deposit. We've got to an agreement with Codelco in the first phase of that. It's not 100% inked, but we anticipate having an agreement with them signed in the upcoming months. That would add one to two years to it. And then beyond there, there's a second phase of that deposit. It's called Peren. It would have, again, a multi-year potential beyond that. And then also on our books are two other little satellite pits called CanCan and Coipanorte, which would, again, add years. So if If all our dreams came true at La Coypa, we could see a path to production out to 27, even 28, which would add several years, talking four or five years to the initial La Coypa mine life estimate. And as Paul said, it would push out Lobo Marte. And we would actually want that. That would be a good outcome. These are low capital expansions at La Coypa. These are pretty high quality pits. and to the extent that we are able to push out Lobo Marte as a result of new production at La Coypa, we would welcome that as an outcome.

So if all the stars align, then, you know, we wouldn't see Lobo Marte in until, you know, maybe after 2028?

Definitely. If that were, that would be a good outcome for us, and we are working towards that. And what we're going to do in our messaging is as we bring these satellite pits into the La Coypa plant, we will announce those as we come up. So one of the things that will drive slightly higher capital for us next year is we're going to be doing some stripping work at Peren, which is that Koudelko JV deposit.

Okay. And staying on to the reserve and resources, just wanted to see how year-end 2021 is shaping up, excluding the addition that you had in Russia to reserves. I just want to talk about the mine sites. How do we feel about reserve replacement, number one? How do we feel about the resource category and just confirming that you're not changing cutoff grades and or your pricing for your reserve and resources?

Yeah, so you took my freebie away from me there on you didn't, because that was your replacement.

And you can't get that one, Paul.

Yeah. We're working on other potential ads. So as I mentioned in my prepared remarks, we're working on a Phase S study at Round Mountain. It'll be close as to whether we get that into our year end. That's a pretty big inventory there. That's going to be between 600 and a million ounces. We also just added 300 at Lobo Marte. I know you're probably not going to give me credit for that. And then we're going to have little dribs and drabs at the other mine sites. We are still using 1,200 for our reserve optimization number, and we don't have any plans to move off that. with this year end.

Okay.

So I think we're probably not going to have a replacement. If you don't give us credit for Udinsk and Lovomarte, which together are $3.3 million of reserves, we're likely not going to have a full offset in the rest of the portfolio.

Okay. That's fair enough. And then my last question is for Andrea. I just wanted to come back to that slide nine where you talk about these inflationary pressures. And thank you for that slide. Just trying to understand if we were to assume that the first half of 2021, we didn't see inflationary pressures, would it be safe to assume, and again, all things being equal, that 5% increase would be if we were to benchmark it on maybe dollar per ton on the first half of your cost of 2021. I'm just trying to see directionally what I should put the 5% and 10% on. Like I need a base. Like it's not all over 2021 because you've got some inflation for the second half in there. Would benchmarking it to first half of 2021 on the dollar per ton be correct or not? How should I think about that?

Yeah, maybe we want to come back to you on that one, Tanya, if we can drill into it in a little bit more detail with some more numbers in front of us.

Okay, and appreciate that on the capital side, too. Thank you.

On the capital side, you can, you know, we had last year given $800 million for CapEx for 2022. So that's kind of where you can apply the inflationary estimate that we've given. You can start with that $800 million. And then, you know, on top of that, we may have some other increases. That $800 million number was based on projects approved at the time and a little bit for UDINSC on top of that. So there's other things that are, you know, coming that will come into CapEx on top of that.

Right, to the extent it's not inflation-related. It's decisions where we've decided to think about reinvesting into our business.

Okay, so 10% on the 800 plus other approved projects. That's right.

Tanya, you picked up on the inflation note, obviously, on commentary on us and other companies. It's still there, and in some cases, still increasing. So it's not like inflation hit, things got to a new level and stabilized. In some commodities, we continue to see price increases.

Okay. Just trying to make a stab at what we think we could see in 2022, you know, from some sort of a stabilized level. And appreciate that it is moving. It's a moving target. So I'll wait for some more on that. Thank you. Thanks.

Once again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Matthew Murphy with Barclays.

Hi. Yeah, I was going to ask about the CapEx outlook. What do you think the chances are that CapEx is, you know, flat to up as opposed to declining? I know you had, you know, talks at the time of your last garden, so... you know, the sustaining levels to sort of sustain production long-term. And so, you know, you tack on inflation and, you know, we're still in a pretty healthy gold price environment. I'm just wondering directionally how we should think about it.

I think we just covered it a little bit, Matthew. I think we're guiding up both from an inflation and from a you know, new project investment perspective we expect up. I think, you know, in the past we've used some directional sort of rule of thumbs. We've said it'll get you into the right zone if you're thinking about capital in terms of, say, $300 an ounce. If you inflation affect that, you'd adjust that to sort of $3.30 per ounce. But I think, you know, directionally up. Yeah, okay, thank you.

Your next question comes from the line of Anita Soni with CIBC World Markets.

Hi, just to follow up on that other expense line item. I'm just trying to get some color on what would be included in that for next year. Would there be any more? I mean, I assume Tavis was done and then Round Mountain, would there be any cost there still?

I mean, it's difficult to predict just by the nature of other operating costs. But, yeah, I mean, obviously we had some bigger ticket items that, you know, were specific to this year. So don't really expect any more of those two items going forward.

And COVID costs, which were part of it historically, are coming down.

Yeah, I mean, COVID costs for the quarter were about $5 million, and they have been trending down kind of from last year throughout this year. So, you know, As far as we're seeing, we expect them to continue to go down, but something we'll continue to watch as well.

Okay. Thank you. And at this time, there are no further questions. Are there any closing remarks?

No. Thank you all for joining us today. We look forward to catching up with you in the coming weeks and months. Thanks, everyone. Thank you, Operator.

You're welcome. This concludes today's conference you may now disconnect.