Kinross Gold Corporation (K) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Catherine McLeod-Seltzer, and I'm the Chair of your Board of Directors. It is my pleasure to welcome you to the 2021 Annual Meeting of the Shareholders of Kinross Gold Corporation. In response to the ongoing public health impact of COVID-19 and in compliance with provincial government stay-at-home orders, the company is holding a virtual meeting of shareholders once again this year. COVID-19 continues to significantly impact many facets of our lives and our businesses. For Kinross, it was, in some respects, a year of contrast. Despite the enormous adverse impacts of the pandemic on the global economy, we were able to safely and skillfully navigate through this past year with excellent results, thanks to the tremendous efforts of our global workforce and the leadership of our management team. We thank you for attending the meeting as we strive to provide the same level of disclosure, transparency and participation as at our physical meetings. I would like to note that Kinross is permitted to hold a virtual meeting of its shareholders, both under the Ontario Business Corporations Act and our bylaws. Voting on items of business to be considered at the meeting is now open. And polls will remain open until the formal business of the meeting is completed. At which time, I will declare the polling closed on all items of business. I will also pause briefly for you to vote as we go through the items of business today. Shareholders who have voted in advance are not required to vote again during the meeting unless they wish to change their voting instructions. [Operator Instructions] The moderator will relay the questions, and they will be addressed after the CEO presentation. Joining me electronically this morning are the other Director nominees; Paul Rollinson, President and CEO of the company; members of the senior leadership team of Kinross; and Luke Crosby, the Corporate Secretary of Kinross. Also joining us electronically is Mr. David Oldham, partner at KPMG, the company's auditors. A recording of this meeting will be available on Kinross' website and on the meeting portal after the meeting. Pursuant to the bylaws, I, as Chair of the corporation, will chair the meeting, and I appoint Luke Crosby as the -- the Corporate Secretary, as secretary of the meeting. I further appoint Computershare Investor Services Inc. through its representative Paul Allen to act as scrutineers. The notice calling this meeting of shareholders was mailed on April 6 to all the shareholders of record on March 19, 2021. The Secretary will attach to the minutes of this meeting the declaration of Computershare Investor Services Inc. confirming the mailing of the notice of meeting. The scrutineers have submitted their preliminary report on attendance, and it shows that holders of more than 864,559,937 common shares, representing approximately 68.56% of the outstanding common shares are represented at today's meeting. As a result, we have a quorum for the meeting. In order to expedite the formal part of the meeting, I have asked Paul Fitchett and Kathleen Jackson Allamby, both shareholders of the corporation to move and second each motion. Notice having been given in accordance with the bylaws and a quorum being present, I declare that this meeting is duly constituted for the transaction of business. The minutes of the previous annual meeting of Kinross held on May 6, 2020, may be requested by contacting the Corporate Secretary of the corporation. Prior to commencing our items of business, I would like to report that the consolidated financial statements for the fiscal year ended December 31, 2020, including the balance sheet and accompanying statements, together with the auditor's report, are all contained in the annual report previously made available to shareholders. Printed copies of the annual report may be requested by contacting the Corporate Secretary of the corporation. The first item of business is the election of 9 Directors to hold office until the next Annual Meeting of Shareholders or until their successors are elected or appointed. At this time, I would like to take the opportunity to name the other Director nominees who are present on this call. We have Ian Atkinson, Kerry Dyte, Glenn Ives, Ave Lethbridge, Elizabeth McGregor, Kelly Osborne, Paul Rollinson and David Scott, all joining us. I will now request a nomination for the 9 nominees named in the management information circular for today's meeting.

I nominate the 9 nominees named in the management information circular for election to the Board of Directors of the corporation.

I second the Director nominations.

If you have not already done so, you may now vote for the election of Directors. [Voting]

As the number of nominees is equal to the number of Directors required to be elected, I now declare Ian Atkinson, Kerry Dyte, Glenn Ives, Ave Lethbridge, Elizabeth McGregor, Catherine McLeod-Seltzer, Kelly Osborne, Paul Rollinson and David Scott elected as Directors of the corporation to hold office until the next annual meeting of shareholders or until their successors are duly elected or appointed. The next item of business is the appointment of KPMG LLP to serve as auditors of the corporation until the next Annual Meeting of Shareholders and authorizing the Directors to fix the auditor's remuneration. Shall I have -- may I have a motion to approve and second such appointment?

I so move.

I second the motion.

The motion has been moved and seconded. If you have not already done so, you may now vote your shares for the election of auditors. [Voting]

The next item of business is the resolution approving the reconfirmation of the shareholders' rights plan as more fully described in the management information circular. May I have a motion to approve such resolution?

I so move.

I second the motion.

The motion has been moved and seconded. If you have not already done so, you may now vote your shares for the reconfirmation of the shareholder rights plan. [Voting]

The last item of business is an advisory resolution respecting Kinross' approach to executive compensation. Details of Kinross' approach to the compensation of its executives and the text of the proposed advisory resolution are included in the management information circular. May I have a motion to approve such resolution?

I so move.

I second the motion.

The motion has been moved and seconded. If you have not already done so, you may now vote your shares on the advisory resolution with respect to executive compensation. [Voting]

I now declare the voting closed on all items of business. The scrutineers have completed their preliminary count of the votes cast, and I have received the results, and I declare that all motions have passed. Report on all matters voted on at this meeting will be filed on SEDAR. This concludes the formal business of the meeting. I would now like to turn the meeting over to Mr. Paul Rollinson, President and CEO of the company.

Thank you, Catherine, and thank you to everyone for taking the time to join us for our second virtual AGM. Before I get started, let me call your attention to our cautionary statement on forward-looking information. I would also remind our shareholders that they may submit questions through the message icon on the screen, and we'll answer them at the end of my remarks. I'd like to begin by introducing members of our senior leadership team, all of whom are on the call. Geoff Gold, Executive Vice President, Corporate Development and External Relations and Chief Legal Officer; Paul Tomory, Executive Vice President and Chief Technical Officer; and Andrea Freeborough, Senior Vice President and Chief Financial Officer. I'd also like to welcome our employees joining us today and thank them for their efforts over the past year. Their continued hard work and vigilance during a very challenging time has made it possible for us to safely maintain business continuity, deliver outstanding results during the past year and support our host countries and communities. They rose to the challenge, kept themselves and their colleagues safe and truly lived our value of putting people first. The COVID-19 pandemic has taken an unprecedented toll worldwide, and it continues to impact us all. While our company is well positioned to continue to thrive, I know that some of us have been deeply and personally affected by this pandemic. I want you to know that we stand in solidarity with you. While it's difficult to predict what comes next, I believe there are better and brighter days ahead. Today, I'll discuss our ongoing COVID-19 response and our commitment to ESG, our operational and financial performance in 2020 and our Q1 results, which we released yesterday, and our longer-term strategy to continue generating value. I'll start with our response to COVID-19. From the beginning of the pandemic, Kinross has prioritized the health and safety of employees and host communities and its mitigation and management plans and implemented rigorous protocols at all our operations to safeguard our workforce. We also took prudent measures to maintain business continuity and address supply chain risk. We actively managed metal shipments to mitigate potential disruptions at refineries. And as a precautionary measure, we drew on our credit facilities to put cash on our balance sheet. As a result of these measures and with the support of our host governments, we were able to keep our employees safe, continue to operate all of our mines and meet our original prepandemic guidance while bolstering our future outlook. Much of the credit for this success must go to our employees, who came up with innovative measures to safely do their jobs and adhere to stringent protocols while maintaining a high level of productivity. Aside from the obvious benefits to the company, maintaining business continuity also protected the wages and the job security of our employees and maintain the economic and financial contributions we provide to host countries through taxes, royalties and procurement. We also stepped up to support our host communities during this difficult time. In 2020, we provided more than $6 million towards local efforts to combat COVID-19. I'd like to now show you a short video that highlights the kind of support we have provided to our host communities and countries through the pandemic. [Presentation]

Thanks again to our global teams for all the work they have done to support our communities during this challenging time. This work is underpinned by our ESG commitments to protect the environment, provide social support and maintain strong corporate governance. Safety, which is our most important priority, leads into ESG. Both are embedded in the Kinross culture and are the foundation of our values. We work hard to ensure that every member of our team goes home safely every day, and our safety performance reflects this. In 2020, our safety rates were in line with our 3-year averages and among the lowest in the industry. This overall positive record was, however, overshadowed in November 2020 by the first mine site fatality at Kinross since 2017. This tragic event was followed by safety standdowns at every operation to reinforce our standards and to ensure we are doing everything possible to safeguard the well-being of our employees. This tragedy serves as a reminder that despite our diligent efforts in the area of safety, our work is never done. We will continue to focus on vigilance and continuous improvement as we move forward. One of our key ESG commitments is also responsible environmental stewardship. With this and our values in mind, yesterday, we committed to working towards the goals of the UN Paris Agreement on climate change, with the ultimate objective of being a net zero greenhouse gas emissions company by 2050. To support this objective, we are developing a strategy that we expect to finalize by year-end that will identify tangible greenhouse gas reduction targets for 2030. This strategy will analyze renewable resources and alternative energy technologies over the life of mine for all of our global assets. This strategy will also leverage our current position as one of the lowest greenhouse gas emitters among our peers and build on our record of incorporating energy efficiencies into our mines. For example, in 2018, we acquired 2 hydroelectric power plants in Brazil, which are now supplying renewable energy to Paracatu. We are also exploring on-site renewable energy generation, such as solar power in Mauritania, and sourcing renewable energy power from the grid in Chile. Another priority issue that I wanted to highlight is tailings management. I am proud to say that our comprehensive tailings management program continues to meet or exceed international standards. During our 27-year history, there has never been a tailings breach at a Kinross-owned facility. We use the best technologies and the best designs to maintain this important record. In addition, in 2020, we met or exceeded all site level targets for permitting, water management and closure planning. In terms of social support, as I said, Kinross continued to generate significant economic benefits to our host countries. Currently, about 99% of all employees and 87% of management at Kinross operations are host country nationals. As we highlighted in our latest sustainability report, we have provided approximately $3 billion in economic benefits to our host countries through taxes, wages, procurement and community support and supported approximately 938,000 beneficiaries during the year through our extensive community programs. We also advanced our work on inclusion and diversity. Over the year, we met our Board gender diversity target and increase the number of women in our workforce. As well, we committed to Canada's Black North Initiative and its anti-racism pledge. With respect to governance, we remain committed to the highest standards. Kinross was once again recognized as the top Canadian mining company in the Globe and Mail's annual corporate governance ranking. Regarding governance at the Board level, we have brought in 7 new independent directors since 2015, enabling effective succession planning for our Board committees. I'd now like to turn to our 2020 results. As we look at our performance, I'm pleased to say that Kinross delivered outstanding results despite the impacts of COVID-19. We met our guidance for the ninth year in a row and generated a peer-leading 56% total shareholder return in 2020. We also instituted a sustainable quarterly dividend, returning capital to our shareholders. Due to the tremendous efforts of our global workforce, we safely and successfully maintained business continuity, generated record free cash flow of over $1 billion, increased margins at a higher rate than the rise in the gold price, completed synergistic acquisitions of Udinsk in Russia and Manh Choh in Alaska, provided the market with a strong future growth profile and 10-year outlook and continued our world-class ESG performance. Notwithstanding the pandemic, our operations delivered on our original prepandemic guidance. We produced 2.4 million ounces of gold at a production cost of sales of $723 per ounce and all-in sustaining cost of $987 per ounce. Our 3 largest mines, Paracatu, Kupol and Tasiast, accounted for 62% of production and were the lowest cost mines in the portfolio for the second year in a row. Tasiast also delivered record production and record low cost in 2020 for the second consecutive year. Our strong operations contributed to our excellent financial performance in 2020. Kinross' adjusted earnings more than doubled to $970 million year-over-year. We also increased margins by 53% to $1,051 per ounce, outpacing the rise in gold price. And finally, we have excellent debt metrics. Our investment-grade balance sheet strengthened as we improved cash and liquidity, ending the year with over $1.2 billion in cash and $2.8 billion in total liquidity. Turning now to the first quarter. We continue to perform well to start 2021. And yesterday, we released our results. During the first quarter, Kinross produced approximately 559,000 ounces of gold at a production cost of sales of $756 per ounce, which was in line with the previous year. Our all-in sustaining costs decreased year-over-year to $975 per ounce. Our projects also continued to advance well, with the development work in our Tasiast 24K and La Coipa projects proceeding on schedule. We expect to increase throughput capacity to 21,000 tonnes per day by year-end at Tasiast and first production at La Coipa is on track for mid-2022. In addition, at Udinsk in Russia, Manh Choh in Alaska and Lobo-Marte in Chile, feasibility studies are proceeding as planned. We also delivered strong financial performance over the quarter with margins of more than $1,000 for the third consecutive quarter, $400 million in adjusted operating cash flow, $76 million in free cash flow, with adjusted net earnings increasing 51% to $193 million or $0.15 per share year-over-year. Our investment-grade balance sheet remains strong with over $1 billion in cash and $2.6 billion in total liquidity as of the end of Q1. And we also recently announced the redemption of $500 million in senior notes due in September, ahead of schedule, further evidence of our strong financial position. Our Q1 results keep us on track to meet our 2021 guidance. With a peer-leading cash flow profile and the strength of our balance sheet, we are well funded to deliver on our future growth strategy. Turning now to the 3-year outlook we provided last year. We expect to see a 20% increase in production by 2023, along with stable long-term production for the remainder of the decade. In 2022 and 2023, annual production is expected to increase to approximately 2.7 million and 2.9 million ounces, respectively. Longer term, we expect to produce an average of 2.5 million ounces per year to 2029, with additional upside opportunities. Our future growth profile is underpinned by our advanced stage projects and exploration programs. Through reinvestments in our global portfolio, continuous improvement initiatives and exploration success, we have been able to add lower cost and lower risk projects to our pipeline that leverage existing infrastructure and enhance our long-term production profile. These projects include Tasiast 24K, Udinsk, the La Coipa restart project and Lobo-Marte. We have also advanced our long-term strategy through disciplined asset acquisitions that fit well within our portfolio. Kinross also increased proven and probable mineral reserves in 2020 by 5.7 million ounces after depletion, a 23% year-over-year increase, bringing our total reserves to 30 million ounces. Due to our successful exploration and mine optimization programs, both Kupol and Paracatu extended mine life by 1 year to 2025 and 2032, respectively, and Chirano extended mine life by 3 years to 2025. We also see further opportunities for additional mine life extensions as we look ahead. This year, we are ramping up our global exploration program with a focus in Russia and Ghana and are encouraged by the potential we see in these well-known jurisdictions. Kinross had an excellent year in 2020, and we remain on track to execute on our strategy of operational excellence, financial strength, disciplined growth and responsible mining. We have a 9-year track record of delivering on guidance. We are well positioned to continue delivering value to our shareholders in the future. As I said at last year's AGM, I truly believe that our core principles continue to provide a strong foundation as we work to get through this pandemic and have laid the groundwork for an exciting future for Kinross. In closing, I want to again thank our employees for their vigilance and dedication, our host governments and communities for their partnership and cooperation and our shareholders for their continued support. We'll now take some questions that we have received from shareholders.

We received one question from shareholders. It is, what is management's thinking on enhanced shareholder returns?

Sure. Thanks. Yes, look, I think that's a great question, particularly as we look at where we are and where we're headed. As we indicated, we've got an excellent balance sheet. And when we look forward with our growing production and our growing cash flow, we will have substantial free cash flow over the next few years. When we talk about return of capital, of course, we're really talking about dividends and the possibility of something like share buybacks. We did reestablish the dividend last year. We positioned it, and we think it's a competitive yield. Interestingly, at around today's share price, that's about a 1.6%, 1.7% yield, which is interesting when you consider the S&P 500 yield is probably closer to $1.4 billion. So we've got a base dividend, baseline dividend that we see as sustainable. It's meant to be there for the longer term, depending upon where the share price goes. Certainly, we're comfortable down to 1,200 where we do our reserves. Beyond that baseline dividend, we're continuing to think. As we indicated, we've got some nonrecurring cash items this year, the largest of which is we are repaying the $500 million of senior notes. And we will continue to think about how we might enhance that return of capital, starting to look at the possibility of buybacks, but we'd like to get through that bond repayment, see how we're going with the share price, see what's going on macro economically with the whole industry and cost structure. And we're thinking about it. We understand the importance to shareholders and we'll have more to say on that as we get further into the year.

There are no more questions from shareholders.

Very good. Well, thank you, everyone. Thanks for joining us today. Maybe next year, we'll be back to in-person, but thanks, everyone, for taking the time to join us. We appreciate all your support. Thank you.