Kinross Gold Corporation

Good day and thank you for standing by. Welcome to the Kinross second quarter 2022 results conference call and webcast. All lines have been placed on mute to prevent background noise. Should you require any assistance, please press star zero on your telephone keypad and an operator will assist you. During today's call, there will be a question and answer session. If you would like to ask a question during this time, Simply press star 1 on your telephone keypad. I will now turn the conference over to Chris Lichtenhout, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. With us today we have Paul Rowlinson, President and CEO, and from the Kinross Senior Leadership Team, Andrew Fribro, Paul Tamori, and Jeff Gold. Differing from estimates contained in our forward-looking information, please refer to page 2 of this presentation, our news release dated July 27, 2022, the MD&A for the period ended June 30, 2022, and our most recently filed AIF, 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, I'm going to briefly review our second quarter performance, comment on our expectations for the second half of 2022, and update you on key developments across our portfolio. Then I will provide some comments on the state of our business and the compelling value opportunity our shares currently offer. After that, I will turn the call over to Andrea and Paul, who will provide more detail on our financial performance and on our operations. Beginning with our results, as a company that has met guidance nine out of the last 10 years, I am not happy with our operational results in the first half of this year.

Given the challenges we have encountered, we are now targeting production at the low end of our guidance range.

In order to meet the low end of guidance, we will need to produce nearly 400,000 ounces more in the second half than we did in the first. We see the increase in production coming from the following four areas. One, the movement to higher grades at parricouture. Two, seasonally enhanced recovery from our U.S. heap leach operations with particularly strong performance expected from Bald Mountain Three, maintaining the 21,000 ton per day throughput at Cassius that we have already achieved. And four, working through supply chain challenges at the La Coypa mill. I want to give you my commitment that we will be highly focused on the delivery of these objectives. On costs, with the slower ramp-up at La Coypa resulting in lower production overall, combined with inflation, we expect to be above our guidance for cost of sales and ASIC. Andrea will elaborate on this in a few moments. We remain confident in our expectation our cost per ounce will drop in the second half relative to the first half, given the planned increases in grade and production across our portfolio. During the quarter, We improved our liquidity by paying down $120 million of debt, and we plan to repay an additional $300 million to $400 million in the second half. We also continue to return capital to shareholders through our dividend program and plan to continue our buyback program in the second half. Moving to our projects, things are progressing well. On a particular note, yesterday evening, we released the study results for our 70% owned high-grade Mantua project. We are pleased with the results of the study and will be moving forward. During the quarter, we completed the sale of our Russian business for total cash consideration of $340 million, with $300 million received on closing. We continue to advance towards the closing of Toronto, which we expect will be finalized in August. These divestitures have resulted in approximately 70% of our production now coming from the Americas. Looking at our value proposition, we have a competitive reserve life index into the next decade, substantial production focused in the Americas, significant margin and free cash flow, a strong balance sheet, and an attractive return of capital. Our top two assets, Cassius and Perica 2, together are expected to produce, on average, more than 1 million ounces annually into the next decade. The rest of our portfolio in Alaska, Nevada, and Chile make up an additional 1 million ounces, which we expect to produce annually. In addition, we expect our world-class Great Bear development project to carry our production into future decades. Before I turn the call over, I want to touch on the important area of safety, our first priority. Sadly, in July, we suffered a fatality at our Cassius mine. This unfortunate incident is a reminder that despite our constant focus on safety, our work is never done and we need to be continuously improving our standards and practices. We value the health and safety of our workforce above all else and are taking steps to continuously improve our risk management and safety systems to safeguard every member of our team. With that, I'll now turn the call over to Andrea for a review of our financial results.

Thanks, Paul. I'll cover financial highlights from the quarter, provide an overview of our balance sheet, and then touch on our capital allocation. First, I'd like to point out that all of the financial metrics I'll comment on today exclude our former Russian assets and Cherano. As Paul noted, our second quarter production of 454,000 ounces was stronger than the first quarter, driven primarily by increases at Perica II and our U.S. operations. Our Q2 cost of sales was $1,027 per ounce, which increased relative to the first quarter, largely due to increased costs at Round Mountain and higher fuel costs at Passyut. We expect cost of sales to decrease in the second half, which I'll come back to. All unsustaining costs of $1,341 per ounce were higher than Q1 due to the increase in cost of sales and higher sustaining capital. As we indicated in our press release yesterday, our costs are tracking above our previous guidance range, and we're now expecting full-year cost of sales to be approximately $900 per ounce, and our oil and sustaining costs to be approximately $1,240 per ounce, due mainly to lower production from La Coyza and inflation. On inflation, we previously incorporated a 7% increase in our operating costs for the year. we now expect the impact to be around 10 to 12% for the full year, and we factor that into our revised guidance. For CapEx, our initial assumption of 10 to 15% inflation still holds. Our expectation of $900 per ounce incorporates lower cost of sales in the second half at approximately $830 per ounce. We're confident in this reduction, which comes from the ramp up in production across the portfolio and the benefit from increased lower cost ounces at Cassius and La Corsa in particular. Our second quarter adjusted operating cash flow was relatively consistent with Q1 at $252 million. CapEx of $150 million in Q2 was higher than Q1, but still a slower pace than what's planned for the second half. We still expect to spend our guided CapEx range of $850 million by year end. Free cash flow during the quarter was $108 million, or $103 million excluding working capital changes, which was a significant increase over Q1. We expect free cash flow to increase further in the second half, particularly in Q4, as our production increases and costs decrease subject to future gold prices. With regards to our balance sheet, our financial position remains strong and is expected to strengthen further both in the second half of the year and going forward into 2023 and 2024. We maintain investment grade credit ratings from our three rating agencies, two of which reaffirmed ratings during the second quarter. We ended the quarter in solid cash and liquidity position with $719 million of cash and approximately $2.1 billion of total liquidity. As Paul mentioned, we repaid $120 million of debt in the second quarter with another $100 million paid down in July and plans for continued repayment going forward. Our trailing 12-month net debt to EBITDA ratio improved slightly at June 30th to 1.7 times. We expect this ratio to continue to come down throughout this year and next year. Finally, on capital allocation, as Paul noted, we expect to continue with our dividend, which we plan for the long term, including at lower gold prices. Our dividend now amounts to a compelling yield of nearly 4%. We also plan to maintain our baseline share buyback program at the same level as our dividend. But as always, we're monitoring gold prices and inflation as we think about our capital allocation priorities. With that, I'll now turn the call over to Paul.

Thanks, Andrea. This morning I'll provide key updates on our operations, share highlights from our decision to proceed with Moncho, as well as details on our ongoing growth projects, and share some news from exploration. Across our portfolio, Q2 improved compared with Q1, but was not without challenges, as Paul mentioned. Looking forward, we remain on track to ramp production up in the second half of the year, driven by planned higher grades and throughput levels across the portfolio. I'll provide a few examples of this, starting with PASIUS. Tassie's delivered a good second quarter with 129,000 ounces produced. Head grades remain strong in Q2 and we're encouraged by the ongoing throughput ramp-up, regularly achieving more than 21,000 tons per day. The outlook on Tassie's remains strong and the site remains on track for a record year with over 600,000 ounces of production. We're expecting a production increase of at least 30% from Tassie's in the second half of the year. largely driven by sustained throughput of 21,000 tons a day and increasing grades coming out of West Branch 4, where we are mining now. In July, for example, the mill grade averaged just below 3 grams per ton. The second phase of the project ramped up to 24,000 tons a day also remains on track for completion in the middle of 2023, with engineering substantially complete and procurement well underway. Construction of the solar power plant at Tassius is advancing, with detailed engineering ongoing and procurement underway with initial site activities expected to start later this year. At Perica 2, production from the quarter was 129,000 ounces, up roughly 20% compared with the first quarter. We expect to see higher grades at Perica 2 through the remainder of the year as mining enters into a higher grade ore in the southwest area of the pit as planned. The processing of lower grade stockpiles is largely complete for this year. Throughout July, we have been averaging a grade of 0.45 grams per ton, which is approximately 30% higher than the first half, and we expect to produce around 50,000 ounces this month alone. I'll now move over to La Coypa. As Paul mentioned, commissioning the mill progressed more slowly than initially planned in the second quarter. However, La Coypa is making progress and will be a meaningful contributor to our portfolio going forward in terms of production and cash flow. is exacerbated by global supply chain problems, which have hindered the availability of critical components. Mitigations are ongoing, and July is showing improving throughput levels, including recently reaching 10,000 tons per day. With the commissioning of the second line of the plant underway, we now expect La Coypa to reach sustained throughput of 13,000 tons per day in the fourth quarter. These issues have resulted in a production deferral of approximately 60,000 ounces. To reflect this delay, as well as a higher gold to silver price ratio than initially assumed in our guidance, we have revised our expected liquidity for production for the year down from 200,000 ounces to 125,000 gold equivalent ounces. We do not expect a delay to impact production going forward once we're ramped up, so production in 2023 and beyond is intact, and the ounces deferred this year will be realized in future quarters. Mining rates have also ramped up as planned, and we now have a stockpile of 800,000 tons, the grade of 1.2 grams per ton gold equivalent, ready for the mill. Moving to Round Mountain, the site optimization project remains on track for completion later this year. Overall, there are no significant changes to our expectations from our most recent comments. We expect to develop Round Mountain according to the following sequence. Phases W1 and W2, two sub-phases of phase W, will be mined as an open pit and are the priority for the next two to three years. Then, phase S will be added starting Q1 of 2023, and the necessary permits for this phase were received this past month in June.

Following that, we expect to mine W3 and W4, which are the last two sub-phases of W.

We continue to evaluate the trade-off between underground versus open pit for these phases. Looking longer term, we're advancing the study of underground options for both Phase X and Gold Hill, both of which are showing promise. We'll provide more details later this year as we approach the completion of our optimization study. To recap, our confidence in a strong second half relates to improved grades as for our pipeline sequence of Perica 2, At TASI, it's production growth coming from a combination of sustained throughput at 21,000 tons a day and higher grade ore from West Branch IV. And at La Coypa, where we are progressively advancing the commissioning of the second line of the plant. And lastly, leaching at the U.S. sites is picking up as expected. I will move to an update now on the Moncho project. We are pleased to announce that we are proceeding with the execution of the Moncho project in Alaska. Moncho provides a robust growth project for Kinross, adding high-grade, low-cost production to Fort Knox. The project returns remain attractive despite the impact of inflation. Our pre-production capital investment of $190 million includes a higher-than-typical contingency to allow for the construction will be the priority for the remainder of 2022, setting us up for a successful field season in 2023, and we expect to be in production during the second half of 2024. Before turning the call back over to Paul, I'll provide a brief update on our exploration programs. Starting with Great Bear, as our exploration program advances, the results reaffirm our expectation that this will become a world-class mine. We remain on track to complete the 200-kilometer exploration drill program for the year. We continue to receive positive drill and assay results that confirm global mineralization, which is open along strike and depth. And we received exciting results at depths below 500 meters, of note, A recent drill hole from earlier this month intercepted 18 meters of 5.8 gram per ton gold, including 2 meters of 41.8 grams per ton at a vertical depth of approximately 550 meters. Results like these support our vision for a sizable underground mine to complement the open pit. Also, the 35,000 meter grade control program has been completed, confirming our initial view on the high grade core of the LP fault zone. This program has improved our understanding of continuity and grade distribution. On this topic, I want to clarify a point we made during our June 28th project update session that may have been misunderstood. The high-grade nature of the open pit that we originally envisioned has been confirmed. In addition to this, we've discovered low-grade material that is incremental and will be stockpiled to ensure we maintain high-grade mill feed. So this is good news and expected to add value. Environmental baseline studies have begun, and all key work packages have been awarded for scoping-level engineering work. All in all, we remain very encouraged by the results of our work to date and look forward to disclosing our initial resource with our year-end results. Other exploration highlights from the portfolio include encouraging drill results at our Curlew Basin project and extensions to the Round Mountain and Gold Hill veins identified in the late part of 2021. At Curlew, drilling from underground has improved the understanding of mineralized vein orientations. In addition to encouraging results from the stealth and galaxy veins, initial drill results from the lower portal zone show excellent potential to contribute to overall resource growth. We remain on track to report an expected mineral inventory of 1 million ounces for year-end results. At Round Mountain Gold Hill, drilling has extended the main and Alexandria veins for a 300 meters long strike and 200 meters down dip. New geophysical data confirms multiple deposit scale trends open along strike at Gold Hill. We are encouraged by the significant strike continuity and the open, untested nature of the trend. Meanwhile, at Phase X, plans for the construction of an underground exploration drift continue to advance well and remain on track to commence in the fourth quarter. And with that, I'll turn the call back to Paul.

Thanks, Paul. Despite operating challenges in the first half, Our operations continue to advance towards our plans, and we are confident in our outlook for a strong second half. Our company continues to generate meaningful free cash flow, and we think the value our shares offer has never been better. We have an improved geopolitical footprint, a robust production pipeline with exciting projects and exploration to come, a significant free cash flow profile, a strong balance sheet, and an attractive return of capital program. With that, operator, I'd like to open up the line for questions.

Thank you.

Ladies and gentlemen, we will now conduct the question and answer session.

If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove yourself from the queue, you may press star 1 again. One moment, please, for your first question. Thank you. Your first question comes from the line of Fahad Tariq of Credit Suisse. Please go ahead.

Hi, good morning. Thanks for taking my two questions. First on La Coypa, you mentioned mitigation is ongoing. Can you just give some more details on whether the spare parts that are needed have been procured? What else is needed from a supply chain perspective to get the mill kind of where you want it to be?

Yeah, thanks, Fahad. The nature of the issue is as we were commissioning the second line in the filter plant, We had some seals and bearings fail on a number of the pumps. We've placed orders for both new components and new pumps, and we have been steadily sourcing them. We don't have them all at site right now, but we've been steadily having new pumps and components arrive at site. And we expect to have everything we need to fully ramp up throughput in the next couple months.

OK, great. And just switching gears to Moncho, Obviously, with the investment decision and the positive feasibility study results, why is it still excluded from 2024 production guidance?

We typically do our multi-year guidance at the beginning of the year, so it's simply a mechanical step on when we update guidance.

Okay, so it's not a function of, like, expecting lower production in the beginning or in the second half of 2024. Okay. No, no.

No, we just haven't updated our multi-year guidance.

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

Your next question comes from the line of Anita Soni of CIBC World Markets. Please go ahead.

Hi, good morning, Paul. Paul, thanks for taking my question. The first one is this related in regards to CapEx. So if I'm correct, you've spent about $250 million in the first half of the year, but you reiterated your guidance for $850 million. Does that mean that, and correct me if the $250 million is wrong, but does that mean that we'll have a heavy CapEx spend in the second half of the year and you'll catch up 5% to the capital?

Anita, it's Andrea.

Yeah, I mean, we maintained our 850 guidance, but you're right, that's a range of plus or minus 5%. We were low in the first half, but we do expect CapEx to ramp up in the second half for a few reasons. Capital stripping, we expect to increase, in particular at Cassius, Gauld, and LaCoisse. And then we'll have some additional capex at Fort Knox and Paracasou, and then spending at Manchot and higher spending at the 24K project. Those are kind of the three things that factor into higher capex second half.

Okay. And then on costs, I appreciate that, you know, you don't give guidance out for the coming year until February. But I'm just – trying to understand, given the $900 per ounce that you've guided to this year, and I know that you're guiding to lower costs in the back half of the year, but should we be using the lower costs in the back half of the year as the run rate for next year, or should we be thinking that inflationary pressures may offset the volume increase that you have planned for next year?

It's a bit of a tough one to call, and it really is around... From an operational perspective, you know, we're comfortable with the second half with a sort of numerator-denominator production grade effect. But the more difficult part to call, as you're alluding to, is the inflation. And, again, as we said at the beginning of the year, we guided inflation in February at 7%.

We said we'd give an update at mid-year, and here we are essentially, you know, updating now to 12.

So, you know, kind of predict how that's going to play out next year at this point. Hopefully, you know, it abates, but that's going to be the wild card. Okay, thank you. That's it for my question.

Once again, as a reminder, if you would like to ask a question, it is star 1. Your next question comes from the line of Kerry McRury of Canaccord Genuity. Please go ahead.

Hey, good morning, everyone. Maybe first on La Coypa. I know originally the plan was to do 200,000 ounces. I'm just wondering what that ramp-up looks like now, you know, through Q3, Q4, and Q, starting in 2023.

Yeah, so because of these delays in the ramp-up, we're now running through about 8,000, 9,000 tons per had a few days at 10, and we want to ramp up to 13,000 tons by the fourth quarter. If you make that adjustment in total allowances, as I said in the prepared remarks, we're moving locally for production from 200 to 125.

I would just add to that again, just for context, Kerry. I mean, this is obviously frustrating. We're not happy with it. The mine continues to operate. This is not a highly competitive technical issue. It is a ramp up. It's pretty straightforward. It's really just about getting those spares, those parts. For equipment, that's pretty straightforward. So we know what the issue is. We're on top of it. We've just got to source the material and get it dialed back in.

And we've got it dialed back into 2023. Yeah, 2023 will be as per plan. As Paul said, this is just a matter of ramping up to throughput. And we've got the order. We've got the stockpile there at 1.2 grams waiting to be fed.

And then maybe just switching around now, just on the cost there, I mean, obviously a big jump in cost despite a big jump in production. Just wondering if you can add a bit of color on what happened there this quarter.

There's several drivers there. One is just inflation. Our Nevada sites are particularly impacted by cyanide and lime cost increases, particularly on cyanide. It's also a function of a greater proportion of heap ounces versus mill ounces, and also timing of where we are in stacking versus recovery. But even bigger picture, a way to look at it is it's more than anything a function of the lower production number. And as we've said on previous calls, Our intent is to ramp around the mountain back up to that 300,000 ounce a year figure, which will get the cost structure back in line. So big picture, it's really about production scale. But in this particular quarter, it was impacted by a number of those specific issues that I just mentioned.

So the cost should come down to like what, like 1,000 an ounce or something like that?

Well, we're going to have to finish our optimization work, but as we ramp up to 300,000 ounces, which we intend to do in 2024, the cost will trend back downward. Those are the last bits that we're doing on this optimization study of the cost profile, but the cost will come down as production goes up.

Maybe just one last question on TASI. I noticed the recoveries were 89%, which is quite a step down from the last few quarters. Just wondering what happened there.

Yeah, as we got into the high-grade material, we encountered some high-sulfite pyrotite, and that pulled the recovery down. But we've been able to address that through better oxygenation and blending the pyrotites with the non-pyrotite material to get it back up. And over the last few weeks, we've got that back in line. So it's really good to do with some pyrotite that we encountered.

Okay, thank you.

Your next question comes from the line of Mike Parkin with National Bank. Please go ahead.

Hi, guys. This is one for me. With an NCID outstanding and you're still generating and expecting to generate stronger pre-cash flows, is there a thought towards a bit of a balance now in terms of still focusing on the balance sheet in terms of debt repayment, but given where the share price is, maybe putting some capital to work towards repurchase of shares?

Yes, Mike, that's exactly the plan. So we are maintaining both the dividend and the buyback on top of the dividend. And obviously at the same time we're paying down debt. So we're doing all of the above. I think we're taking a bit of a cautious approach as we think about where we are in the macro sense. Where's the commodity price going? Where's inflation going? We'll see how that takes us. And certainly any margin expansion through higher gold prices, we'll think about how we might amp up either the buyback or or accelerate the debt repayment, but we're comfortable doing all three as we sit here today.

Great. Thanks, guys.

Your next question comes from the line of Tanya Jakuskamek of Scotiabank. Please go ahead.

Great. Good morning, everyone. Thank you for taking my questions. Paul Tamari, I just want to circle back to just a bigger picture theme, which is, you know, obviously you have some issues getting these pumps in and spare parts, and just wondering how you're looking at your inventories at site. You know, are we looking at, you know, adding to additional inventories for site, given some of these supply issues, let's say at La Coypa, and following that, as we go to Tavius and we're expanding throughput from 21 to 23 by mid-next year, do we have everything we need for that one on site?

So there's a couple of questions in there, and I'll hit a few anecdotes on this. So as we all know, global supply chains are stretched. and the availability of certain parts has really been impacted, particularly on lead times. We have, over the past six, eight months, done a campaign on critical spares, and we've ramped up inventory levels where possible, where the vendors had the capacity to do that. So, yes, we have been squirreling away critical parts and components where possible and building up our warehouse levels. In the specific case of La Coypa, Just to give an anecdote, we're seeing certain components with 40 to 45-week lead times on things that previous to the pandemic and previous to these supply chain challenges would have been readily available. And it's difficult in some cases to predict specifically where some of these components will really be impacted. And there's always a tradeoff between I don't want to say irresponsibly ramping up warehouse levels and just buying everything that you can.

Oh, we manage inventory as carefully as possible.

Yeah, we manage the inventory as much as we can while ramping up critical spares where we think we can anticipate failures. But it's a difficult one to get right all the time. And in certain situations, no amount of begging and pleading with suppliers gets you more equipment or components. Sometimes the supply chain's are what they are, and we have to source alternative supply. So that's what we're doing here at La Coypa, is we are buying pumps from perhaps not of the quality that we would normally buy, put in place a substandard component or a substandard piece of equipment, and then wait the long lead time for the better piece of equipment. So, yes, we are managing, we are buying replacement components proactively where we can, but it's not something we can do perfectly everywhere.

I'm just going to jump in on that and maybe tee you up a bit more. I mean, again, just for context, why are we here right now where we are? You know, obviously, Tanya, we tested all of this equipment. We ran tests on these pumps as part of our ramp-up to restart the COIPA. And the pumps all work fine. But what we're finding is with constant load, With the ramp-up of the operation, the constant load on this equipment, this is where we've seen the failures. So it wouldn't have been routine for us to have this amount of spare parts given the positive testing we got. But what we've found as we've continued to push the throughput, that's where we've seen some of the failures, and that's why we're scrambling a bit to get these parts.

And a quick reminder, this is a plant that was down for 10 years. And there are over 80 pumps in the filtration plant there. And again, like I said, it's not something you can replace every single one and have in a warehouse.

And again, for context, 80 pumps, we're probably talking 8 or 10 that are problems, so 10% of the total. So we know what it is. We're focused on it, and we're chasing it down.

Given the experience that you've seen there and now knowing what is, you know, taking some of these, you know, supply chain issues or, you know, taking a lot of time to get some of these parts, are you seeing anything that, you know, you're concerned about for the Tavius expansion? Well, you're... Not themselves, but maybe something else in the supply chain that you're now definitely focused on to make sure you have at Tavius.

Well, it is a hard lesson learned, and we are reviewing all of our sustaining capital projects and major projects for exactly similar weak spots, where are there components or key pieces of equipment where we should have a capital spare on hand. So, yes, we are, from a hard lesson learned, we are reviewing critical components across the rest of the portfolio.

And anything in the critical components for TASIUS, like from my understanding, it's just, you know, the expansion of the mill. I think we, if I remember correctly, we had the majority of things we needed on site.

Yes. Yes, the 24K project is more a construction sequencing set of activities, tie-ins. The biggest element there are the sag discharge screen retrofit, and we have all the components for that.

Okay. I just have two other questions, if I could, and one is circling back to Andrea and maybe Paul as well. I'm just trying to understand your capital allocation. Again, I understand you're going to keep your share buyback at $150 million, your dividend at $150 million. You want to reduce your debt at the same time, and I think I have from... I think you want to do another, is it $300 or $400 million on top of what you've recently done for the second half of the year. Is that correct, as I'm thinking on your debt repayment?

Yeah, Tanya, I think, I mean, part of this depends on gold price in the second half. So, you know, we gave a range in terms of what we expect to add to the debt repayment. So just to clarify, in the second quarter, we repaid $120 million. That was $100 million on the Revolver and $20 million on the Tassius loan. In July, we've repaid another $100 million on the Revolver. So we've got $100 million left outstanding on the Revolver, you know, as we sit here today. And we expect to repay, you know, $200 to $300 million in the second half. So that would be taking out the rest of the Revolver and then, you know, addressing other debt. And so for the year, that's a total of $400 million to $500 million. And, again, that range just depends on where we are in gold price.

Yeah, I'm just trying to get an understanding from you. Is there a certain net debt keep at that level that you're looking at before you feel comfortable that you have your debt where you want it to be and your share buyback becomes a focus? Yes. I know I think your target had been to get your net debt to EBITDA under one by year end. So I'm just wondering if that's still possible. I just haven't had a chance to do the numbers. And then my second question is, at what level do you feel comfortable with your net debt to EBITDA to move from debt to share buyback?

Yeah, I mean, I think I did previously say we expected that ratio to be at or slightly below one, just given production now being at the low end of our guidance range. We're probably in the year, you know, slightly above one. That's by no means uncomfortable for us. I think, you know, the message there is just, you know, we are working to strengthen the balance sheet. We're comfortable where we are, but we do see it getting stronger by the end of this year and then continuing into next year as well.

And then I guess we've always thought of the buyback as that flex in the equation. And, again, we're going to take our cue there really from a margin perspective. You know, as we continue to approach that debt metric, If we get some benefit in the commodity, then that's where we'll have the flexibility to amp up on the buyback.

So as your net debt debit dock adds to that one times, then we could see you be more active in your share buyback is sort of what I've understood.

If the tone is right in the commodity. Okay.

Okay. Thank you for that. And if I could just squeeze in once more for tomorrow, it's just back to the inflationary pressures. And I appreciate you've gone from up to 12% for 2022. I'm just trying to look at your key components of your cost structure and trying to understand where you yourself are seeing more inflation. I think from my memory, I think 40% of your cost structure is labor. Maybe just to touch on that biggest component, are you seeing inflation? continued labor inflation, or is it mainly in the consumables and fuel that, you know, we're seeing for everybody else? I'm just trying to get the components and just try and see if anything has peaked for you or has anything peaked for you in terms of what you're seeing in the consumables.

So the one area where we are seeing a peaking, of course, is in the oil prices with things flattening out at 100%. In other key commodities, we continue to see increases in prices, but perhaps at a flatter rate of increase. The most impacted things are like cyanide and lime, ammonia, explosives, things that are essentially tied to the petrochemical chain. In the case of labor, we are seeing pressure in the United States and then to a lesser extent in Brazil and Chile. So we are seeing inflation across the board. We are seeing signs of some attenuation, as I said, in the fuel. And the rates of increase in some of the other key commodities aren't as severe as they were. So if that's a good news story, maybe there is something there that the worst of the rate increases, increasing rates are behind us.

And when you say labor pressure in the U.S., is it in that 3% to 5% that I should be thinking about what you're seeing?

It's a little bit more than that. It's probably the 5% to 8% on labor in the U.S., and it's really driven by very high turnover rates, and the only way to keep those jobs, operators and trucks and people in the mills and in maintenance is by hiring, and typically you have to pay a more competitive wage.

Okay. No, thank you. A lot of time, so I'll pass it on to somebody else.

Okay. This concludes the question and answer session. I will turn the call back to Paul.

Thank you, Operator, and thanks, everyone, for joining us this morning. We look forward to catching up in person in the coming weeks. Thank you.

This concludes today's conference call. You may now disconnect your lines.