Morning. My name is Adam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kenrass Gold Corporation Second Quarter 2020 Results Conference Call and Webcast. All participants are in a listen only mode to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Thank you. At this time, I'd like to turn the call over to Mr. Tom Elliott, Senior Vice President, Investor Relations and Corporate Development. Mr. Elliott, you may begin your conference.
Thank you and good morning. With us today, we have Paul Rollinson, President and CEO and Kinross Senior Leadership Team Andrea Frisborough, Paul Tomory and Jeff Gold. Before we begin, I'd like to bring to your attention the fact that 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 statements, please refer to Page 2 of this presentation, our news release dated July 29, 2020, the MD and A for the period ended June 30, 2020 and our most recently filed AIF, all of which are available on our website. I'll now turn the call over to Paul.
Thanks, Tom, and thank you all for joining us today. First and foremost, I would like to acknowledge and thank all of our hardworking employees who have helped us deliver strong results while managing through their own unique challenges during this pandemic. The safety of our employees and their families in the communities that we operate continues to be our first priority. I also want to say that our thoughts are with all of those who have been affected by the pandemic. Kinross delivered strong growth in margins, earnings and free cash flow.
This morning, you will hear how our company is technically strong with an excellent operational track record, is managing the impacts from COVID, is delivering very strong free cash flow with peer leading yield and has numerous projects to continue adding mine life and a number of exciting exploration opportunities. Before that, I will comment briefly on the quarter and a few key developments. Andrea will provide a financial review and Paul Tomory will summarize our operating performance. We will also give an update on how we are managing through the pandemic. All the company's operations performed well during the quarter.
Once again though, our 3 largest mines Paracatu, Cupo and Tasiast accounted for over 60% of total production and delivered the lowest cost in the portfolio. More than 50% of our production currently comes from the Americas, the U. S. And Brazil with the balance from Russia and West Africa. Over 80% of our production comes from 5 key assets in 5 separate regions.
With our recent acquisition in Russia and taking into account our track record of exploration success, we expect that these assets and regions will have mine lives of at least 10 years. We also had another strong quarter in terms of free cash flow and generated approximately $220,000,000 during Q2. At current spot prices, free cash flow is expected to remain very strong for the remainder of the year. As a result of our continued strong cash flow, our investment grade balance sheet strengthened further and we finished the quarter with just over 1 point $5,000,000,000 in cash, in part due to the draw on our revolver. Andrea will comment further on the revolver.
However, I would note that we did repay $250,000,000 of the facility subsequent to quarter end. At this time, we are not formally reinstating our guidance, but continue to work towards our initial targets released in February. Our key results for the first half of the year are tracking within the original guidance ranges, albeit at the low end of production due to some pandemic related impacts. However, we do continue to expect the second half of the year to be the stronger half for both production and costs. During the quarter, we announced an agreement in principle with the government of Mauritania to enhance our partnership at Tasiast.
We are pleased to have been able to negotiate this mutually beneficial agreement with the government and add to our positive momentum and a decade of success in the country. And earlier this month, we released the pre feasibility results on our Lobo Marte project in Chile, which represents an excellent growth opportunity. Lobo is a large scale long life asset located in one of the world's top mining jurisdictions. The PFS results show that it has the potential to support our long term production profile and increases both our reserves and reserve life index by 25% compared with the end of 2019. The project offers attractive returns at consensus long term estimates driven by good grades, a modest strip ratio and low unit costs.
As we now move forward with the feasibility study, we will continue to prioritize balance sheet strength and disciplined capital allocation. Any construction decision will not be made for a number of years until the feasibility study and permitting have been completed. With respect to capital allocation, our team has managed the company through a wide range of gold price environments and has always remained disciplined on costs and allocating capital. Current gold and energy prices and FX rates are favorable and we expect to continue producing significant free cash flow over the coming years. For example, if gold prices stay above $1800 for the remainder of the year, we would expect to generate over $900,000,000 of free cash flow during 2020.
Over the coming months, we will continue to be disciplined with respect to the use of our balance sheet including leveraging our strong technical expertise to uncover attractive high return investments that makes sense for our business and our shareholders, continue reducing debt as maturities come up, modestly increasing exploration spend to leverage our numerous prospects to potentially add ounces in mine life and post COVID uncertainty, a potential return of capital. Given our internal opportunities, we feel no pressure to make external investments of any sort unless we are comfortable with the risk reward profile. We also have several areas within our portfolio that may present attractive optionality for capitalizing on a high gold price without risking significant capital and without altering the resiliency of our business should prices decline in the future. I'll now turn the call over to Andrea for a more detailed review of our financial results.
Thanks, Paul. I'll begin with a few financial highlights from the quarter, review capital expenditures and end with a summary of the balance sheet. During Q2, we produced approximately 572,000 attributable gold equivalent ounces and sold 584,000 at an average cost of sales of $7.25 per ounce and an all in sustaining cost of $9.84 per ounce. We are particularly pleased with the cost performance, which came at the middle of our original guidance range despite COVID-nineteen related inefficiencies and challenges. Our margins increased 53 percent to $9.87 per ounce, outpacing the 31% increase in our average realized gold price of $17.12 per ounce.
We sold approximately 12,000 ounces more than we produced, including about 15,000 ounces that were unsold at the end of Q1, partly offset by a missed shipment at Toronto due to a transportation delay relating to bad weather. These ounces were sold in July. Our adjusted EPS of $0.15 and adjusted operating cash flow per share of 0.33 dollars were both up significantly compared with the Q2 of last year. Adjusted operating cash flow increased to 4 $17,000,000 from $288,000,000 last year. And as Paul mentioned earlier, free cash flow for the quarter was approximately $220,000,000 which is twice the level we achieved in the Q1.
We expect free cash flow to remain strong for the rest of the year. Turning to income tax. We recorded an expense of $103,000,000 during the quarter compared to $47,000,000 in the Q2 last year, with the increase due to higher taxable income driven by higher realized gold prices and higher margins. Capital expenditures during the quarter were $214,000,000 which was slightly higher than $191,000,000 spent in Q1. However, Q2 CapEx was lower than planned due to COVID related challenges.
As an example, capitalized stripping for the Tasiast 24 ks project has been slower than planned due to constraints on the movement of personnel as well as the strike. Our original guidance in February had 20.20 CapEx of $900,000,000 plus or minus 5%, with a reduction of approximately $100,000,000 in 2021. We still expect combined CapEx for the 2020 2021 timeframe to be in line with these original targets. However, the timing of spend on specific projects may be modified. We've identified expenditures from 2020 that will likely not occur until 2021, and we've identified some expenditures originally planned for 2021 that have strong business cases to be brought forward to 2020.
Paul Tomory will provide some examples shortly. However, the point I'd like to make is our overall capital needs are not changing materially and we have the flexibility to adjust the allocation of our spending in 2020 and 2021 as we adapt to the external environment. We also expect some puts and takes on operating costs, including continued favorable foreign exchange rates on the Brazilian real and Russian ruble and lower energy prices, higher royalties resulting from higher gold prices and of course potential impacts from any future operating challenges associated with COVID-nineteen. With strong metal sales, a rise in gold price and a $200,000,000 draw on the Tasiast facility, we ended the quarter with just over $1,500,000,000 of cash and cash equivalents. Including the Tasiast facility and the $750,000,000 drawn on the revolver, total debt at June 30 was $2,700,000,000 and net debt was approximately $1,100,000,000 On a trailing 12 month basis, our net debt to EBITDA ratio improved once again and is now 0.7 times.
As Paul mentioned, subsequent to the quarter end, we repaid $250,000,000 out of the $750,000,000 drawn on the credit facility. We made this partial repayment for two reasons. Our cash balance continues to grow from the strong free cash flow we're generating. In fact, we have more cash now after the partial repayment than when we initially drew on the facility in March. And we're slightly more comfortable with the overall operating and financial environment globally.
Nonetheless, we are keeping the remaining 500 dollars drawn for the time being as the funds are relatively low cost and to ensure we can comfortably manage a wide range of potential risk. In summary, we're comfortable with Kinross's liquidity position and believe we have a strong base to continue to fund our business in the current environment. I'll now turn the call over to Paul Tomory.
Thanks very much, Andrea. First, I'll spend
a few minutes on some
of the key COVID related topics and then I'll give a brief summary of how our operations are doing. I'll also be discussing some very encouraging exploration highlights and comment on areas where we continue to target meaningful mine life extensions. And then I'll elaborate on capital expenditures. Broadly speaking, our portfolio of operations managed very well through COVID-nineteen. We acted early with our task force and took several important measures which allowed us to minimize the impacts to our business.
To date, we have not experienced any material negative impacts and remain on track to achieve our operating and project development targets. That said, we've experienced some minor impacts on which I will elaborate as I discuss each asset. As Paul indicated, our 3 big mines continued their strong performance and accounted for over 60% of second quarter production with a combined cost of sales just below $600 per ounce. Paracatu was once again our largest producer and continues to deliver strong consistent results. Production increased by approximately 15,000 ounces over the last quarter.
Recoveries remained lower than last year, but are in line with our expectations and with what's presented in the technical report. They expected to improve as we move into higher grade ore in late 2020 early 2021. Strong throughput and favorable currency exchange rates during the quarter resulted in low unit costs albeit slightly higher than the year ago quarter due to lower production. Turning to Russia, Khubal and Devoinoy delivered another excellent quarter and continue to generate robust cash flow. Good throughput grades and recoveries drove an increase in production by approximately 3000, 10000 ounces relative to last year and last quarter respectively.
Cash costs are just over $600 per ounce improved from Q1, but increased slightly from Q2, 2019 as a result of higher royalties associated with higher gold price and were partly offset by favorable currency. Turning to exploration at Kupol, Following an excellent year last year, our team achieved one of the best first halves on record, yielding very positive results within the mine footprint at Kupol from areas like the Northeast Extension, Kupol Deep South, Maroshka, Providence. As anticipated, many of these new potential mining zones are narrower in width than those historically mined at Kupol, but made possible at Kupol's ongoing successful transition to narrow vein mining, which should allow us to maintain diluted grades in the 8 gram to 9 gram per tonne range. Exploration will continue to focus on these targets as well as on proximal brownfield targets for the rest of 2020 with the expectation of once again adding to the mines estimated mineral reserves and resources with our year end. With the addition of these ounces from the first half, we expect to be mining at Kupol until at least 2025, further supporting our decades of success in Russia.
We remain very pleased with the results of the Kupol mine exploration program, which combined with the successful transition to narrower vein mining has continued to yield impressive additions to Kupol's mine life. At Chulvacan, we intentionally slowed down our drilling in the second quarter to better manage COVID protocols in the camp, but are now in the process of ramping back up our exploration activities. At the end of the second quarter, just over 35,000 meters of infill step out and metallurgical drilling had been completed. The results are encouraging and support our original thesis for the project which has a large near surface estimated mineral resource with highly continuous mineralization and is open along strike and at depth. The drill program for the 3rd quarter is focused on further definition in the high grade zone and we expect to complete this year's planned 55,000 meter drilling program on schedule.
Moving to Tasiast, despite pandemic related challenges related to the mining rate and a 17 day strike in work stoppage, Tasiast had a good quarter operationally. The mill delivered average throughput of approximately 16,700 tonnes per day during the days it operated, which was slightly higher than the record achieved in the Q1. However, strict COVID screening protocols have limited the workforce available and we have prioritized allocating camp space to those people who work in the mill and in the process circuit. As a result, we've had to curtail the mining rate. In the Q2, Tasiast mined approximately 7,500,000 tonnes, significantly lower than the 22,000,000 tonnes that were planned in the budget.
The principal impact of this result is a deferral of stripping tonnes and the associated capital dollars and a commensurate delay in access to the ore from the West Branch IV pushback. Production is not expected to be impacted in 2020, but the delay in access to new ore and the longer than planned reliance on stockpiles will result in lower production in 2021 than had been compared in contemplated in the original 24 ks mine plan. However, we expect no impacts to Tasiast Lake Mine production, mineral reserve estimates or overall value as we were able to adjust short term mine plans given the availability of very large stockpiles at the site. As for the construction project it continues to advance well. Civil works are well advanced and the project remains on schedule to increase throughput capacity to 21,000 tonnes per day by the end of 2021 and then onward to 24,000 tonnes per day by mid-twenty 23.
However, if pandemic related constraints in the global movement of people and supplies persist for a prolonged period of time, the schedule could yet be negatively impacted. However, I'm pleased to say by the end of June, the company had reinstated the rotation of expatriates staff in and out of Mauritania, which has improved the situation. Moving on to our U. S. Operations, our 3 sites continue to move closer to normal as we maintain discipline on pandemic related protocols and procedures.
At Round Mountain, unit cost of sales increased slightly compared with the last quarter and last year due to lower grades and recoveries as planned. We expect production to increase in the second half of the year particularly in the Q4. Exploration drilling at Round Mountain continue to focus on the Phase X area which is the conceptual name for the next major pushback after Phase W. Drilling has intersected significant mineralization in the outer portions of the shallow section of the Phase X pit shell and confirmed that mineralization extends from Phase W. Further drilling will assess whether mineralization in the upper portions of Phase X could reduce the strip ratio.
We've also initiated early engineering works on what a Phase X pushback might look like. At Bald Mountain, production increased by approximately 15% compared with the last quarter and 20% compared with last year due to improved grades and recoveries from Vantage. However, costs increased slightly compared to last quarter due to an increase in operating waste mined. At Fort Knox production and cost both improved compared with Q1 due to improved mill grade recovery and lower electricity costs. Results at Fort Knox are becoming more reliable and we expect Q3 to further improve our results in the first half.
The Gilmore expansion project is advancing very well and the project remains firmly on time and on budget. We are looking forward stacking first ore on the new Barnes Creek heap leach and completion of the project in the Q4. With Phase W, Vantage, Gilmore and now potentially Phase X, we are very pleased to be extending our time in the mining friendly states of Alaska and Nevada. In Washington State, we completed in the quarter a high level engineering and economic assessment of the potential for mining at the curlew basin at the historical K2 minutee, which is approximately 35 kilometers north of our Kettle River Mill. The results were encouraging and as a result we've reinitiated the rehabilitation and development of an advanced exploration decline to allow for underground drilling targeting incremental high margin ounces proximal to and as extensions of the K2 and K5 deposits.
Moving to Ghana, at Toronto, we experienced some unplanned downtime at the process plant due to issues with the apron feeder thickener and the mill motor which negatively impacted production. Then as Andrea mentioned, there were some untimely weather conditions that prevented a scheduled shipment further impacting sales. The plant issues have been resolved and the missed shipment has also been successfully completed. Following successful near mine exploration extension to Toronto, we expect meaningful mine life extensions. The additional ounces are likely to be slightly lower grade and in narrower veins that could lead to slightly lower production levels and higher unit costs.
However, most importantly, we expect these extensions to be economic at our $1200 per ounce planning price. Additionally, the exploration program continued to yield positive results. At the Obra deposits, drilling in the first half of twenty twenty yielded significant intercepts and has extended the depth of high grade mineralization. As a result, we have begun development work on an exploration drift to better delineate the potential for an underground mine at Obra. Should this hypothesis play out, we could see mine life extensions beyond 2025.
Moving to our Chilean projects, La Coipa continues to make efforts to offset some lost time due to pandemic related restrictions with good progress on hiring, engineering and procurement. Paul has already covered Lobo Marte. And finally as Andrea stated, we are adjusting the timing of our capital program to capitalize on some valuable opportunities our teams have identified and to accommodate the various restrictions across our operations. As mentioned, some stripping at Tasiast has been related to 2021. However, as noted earlier, the changes are not expected to impact the overall 24 ks project timeline.
Some of these delayed expenditures will be offset as we bring forward other projects that add value, such as the purchase of some in pit equipment at Peric Superior that will allow for increased production sooner than initially planned. Additionally, we plan to relocate primary crusher at Round Mountain in order to increase mill recovery and lower crushing costs. To wrap up, our priorities continue to be the health and safety of our employees as we manage through this ongoing pandemic, strong consistent operating results and delivering our projects on time and on budget. And with that, I'll turn the call back over to Paul.
Thanks, Paul. I want to reiterate our gratitude to our employees, suppliers, communities and host governments that all continue to work together to keep everybody safe and productive. As a result of this hard work, all of our assets remain in operation and our projects continue to advance. Notwithstanding COVID, our business is very well positioned. Our commodity prices and currencies are favorable.
We continue to extend our long term track record of strong and consistent performance across all of our geographies. We have an attractive portfolio of operations, projects and exploration opportunities. And we continue growing our free cash flow and further strengthening our investment grade balance sheet. With all this, we are set to continue driving meaningful value creation and share price appreciation over the coming quarters and years. With that operator, can we now please open up the call to questions?
Yes, sir. And your first question comes from the line of Ralph Profoto with the 8 Capital.
Good morning. Thanks everyone for taking my questions. Firstly, Paul on Tasiast 24 ks, Can you maybe disclose how much of a workforce is needed, say at a minimum to stay on schedule when it comes to construction? And maybe sort of where are you now and how does that workforce need to build up over time?
There's many aspects to it. So within the project, there are different scope elements. So one very large element of scope is the power plant and that probably requires the single largest number of people. We've delayed that project deliberately. It's not a critical path.
It's not required to get us at 21 ks. And so we've pushed that out a couple of months primarily to save space in the camp. In general, we're not particularly worried about being able to ramp up the number of people. They're relatively small scopes of work. The bigger use of space in the camp is in the mining fleet and that's where we've seen the delay in the stripping as a result of having fewer people in the mine.
I'll remind you that the 24 ks project is a series of pretty small scopes of work, thickener, ILR, water upgrades. So we're able to manage those sequentially.
Okay. Thanks for that. If maybe I can switch gears and maybe asking a question on the Chobatka section that you provided. It does show some of these higher grade near surface. And I'm just wondering when it comes to drilling, are you more concentrated sort of a long strike as a strategy?
Are you finding continuity in that higher grade near surface elements of how the solar bodies coming together?
So we remain very happy with what's going on in Chuvacan. The first half of the year was focused on just continue the continued program. As I said, we did about 35,000 meters. The focus to date has been just that infill program and establishing better confidence in our initial hypothesis. The high grade portions, we are excited by that hole, but we haven't spent a lot of time in the first half doing testing on that.
That will be part of our program in the second half. So I don't want to comment too much right now on further high grades until we are able to get into our second half program.
Yes, it's really just in filling and extending.
Yes, exactly. We've really been focused on in filling and getting a better set of data for the resource model that is being built right now. We are excited by the high grades, but we're going to be getting into that in the Q2 to see if there's continuity and more of it.
And the reason that's in the Q3 is we wanted to get the structural geology part.
Correct. So
we could have the best chance of success and efficient spending in dollars.
Yes. That's understood. Thanks for the clarity.
And your next question comes from the line of Greg Barnes with TD Securities.
Yes, thank you. Back to Paul tomorrow again. On the 2021 production levels at Tasiast, so you said it will be down modestly from what was in the technical report. I'm just wondering what modest is?
About 40,000 to 60,000 ounces at our current view. We're still refining the mine plan. There's a couple of variables that have yet to settle. One is how quickly can we ramp the mining rate back up. So the mining rate now is increasing.
So every week we mine more than the previous week. However, COVID related impacts remain in is primarily quarantine related and the number of people we can have in the camp there. The COVID situation at Tasiast is continually improving. So the uncertainty is really how quickly can we rank back up to planned rates. But at our first blush, like I said, 40,000 to 60,000 ounces less than the TR and that's primarily that's almost exclusively grade driven.
And switching back to Paul Rollinson. Paul, your comments at the end of your opening statement about I missed it a little bit, but something to do with you have internal opportunities that you can, I think, bring forward or potentially monetize, I think, is what you're driving in?
Well, I think I just again, I think this quarter, in particular, versus other years, we're pretty excited on the exploration side. We've got a lot of new stuff. We've had some great drilling in the first half of the year. Paul touched on the success at Toronto. We're very excited about Curlew.
There's that aspect to it. The other side of it that I kind of alluded to was, as you know, we do our budgeting and our reserves at 1200 dollars and there is flex obviously in the revenue line where if a project were to green light with your $1200 hurdle, you're going to see a lot of optionality or NPV expansion at higher commodity prices without incurring incremental capital. And what I was trying to say was should commodity prices go back down, we still have positive cash flow, positive IRR, but we are going to get the benefit of higher commodity prices by building at the $1200 threshold.
Got you. Okay. And just finally, Paul, on dividend, I know you're being cautious around COVID-nineteen and it's unclear what the impact will look like over the next 6 to 12 months. But you are generating a lot of free cash flow. I know you've got an attractive pipeline, but clearly that's something I think that investors would like to see returned.
Yes. Look, absolutely. And we get it. I think, Greg, we were getting questions on return of capital in January, February based on what the expectation of the year's cash flow, the year ahead cash flow would be. The COVID kind of put everything in the back seat.
What we said on our previous call was it feels to us a little bit incongruent to be reinstating or initiating a dividend when we've just drawn 750,000,000 dollars under our revolver to put cash on our balance sheet just for business uncertainty. I think the point we're trying to make here today is we're not out of the woods yet, but the signaling by paying back that first tranche of $250,000,000 of the $750,000,000 I think should be taken as a positive signal. We are being impacted by COVID. We are managing through it, but we can't say for certain that we're out of it, we're through it. I'm optimistic though as we continue here, We will work through it.
And as I would have said in maybe in January, it's really not a question of if, it's a question of when. We are stronger financially every month, every quarter. And my hope, there's no guarantees in life. My hope is as we continue to get stronger and we move into the fall and we work through all of this, we're going to be well positioned for that return of capital discussion.
Great. Thanks. That's helpful.
And your next question comes from the line of Josh Wolfson with RBC Capital Markets. And Josh, your line is open.
Sorry. Noting the commentary in the release and on the conference call related to the Kupol expiration results, You gave some sort of commentary about how the magnitude of potential upside at Toronto. Is there any sort of quantity you could tell us to what that exploration upside could be for Kufel?
I mean, I think what Paul said, which I think is really exciting for us, last year was one of the best years ever in terms of reserve replacement at Coupa. And I think the point he was making this year and I'll let him expand is, we've actually been delayed in our spending at Coupa this year. And so we're behind where we would be. But notwithstanding that, we've had the best year ever. So we're feeling really, really good about how things are going from an exploration point of view at Kupol and to put Paul on the spot, but I do think he didn't make the comment about at this stage we're feeling comfortable about again extending mine life.
Josh, as you can appreciate, it's difficult to put quantums out there. But rather, how would I say this? The 2025 minutee life extension we're feeling really good about. We got to do some eye dotting T crossing on that in the next few months and you'll see the reserve update at the end of the year. But we're feeling pretty good about that 2025.
And as you've watched Coupa for many years now, we have a very strong record of continuing to add reserves and replace that which we produced. I don't think it's going to end in 2025. We have a lot of targets. We continue to drill. We continue to spend a lot of money.
The returns are good. And so I'm not going to put a quantum out there, but we're feeling very encouraged by what we're seeing at Kupol. Let me just talk a little bit about what is happening there. The big wide zones at good high grades are largely depleted, but we're getting some very encouraging really the heart of this exploration success is finding these narrower veins with very high grades in some cases 20, 30 grams. Now the widths are 1 meter, so you got to dilute those.
And originally our worry was that the grades wouldn't be high enough and the widths too narrow to support the scale of the Kupol operation. But fortunately, with this very successful ongoing transition to narrow ore vein mining, we think we're going to be able to maintain the diluted grade in that 8% to 9% range and to continue to extend mine life. So really what the big encouraging thing is that we're getting good grades in those veins, really high grades. They're narrow. And we were able to successfully mine them.
So we're feeling really good about what we're seeing at Kupol. And to give you a perspective, a couple of years ago, we had almost no narrow veins in active mining. Our plan right now over the next 3, 4 years is to transition to 3 quarters of our production coming from narrow veins. And it's a phased transition over 3, 4 years. We're switching the equipment over where our workforce is getting used to the narrower veins.
So it's a nice it's not an overnight transition. It's something phased in over 3, 4 years. So we're what I'll say is we're feeling really good about Koopal.
Got it. Okay. And then continuing the conversation on the return to capital commentary, noting where gold prices are today and forecast free cash flow being very high, but also looking at the portfolio of projects and wanting to maintain some conservatism. What's the right approach or right numbers? I'll ask again specifics if that's possible that would make that number sort of relevant, but still not too aggressive?
Yes. Look, I think I don't the way we come at it, the way we think about the allocation of capital really and I said this again maybe back in January, we sort of triangulate around a few considerations. 1 is obviously the gold price, the other is our balance sheet And the third would be just the capital opportunities in our business. And check on the gold price, check on the balance sheet. And for us, quite frankly, just to digress slightly, we feel really good.
I mean, we, as you know, have come through a period of significant reinvestment in our business over the last 3 years. And when we did put out our guidance originally back in mid February, we tried to give a look through to 'twenty one, 'twenty two at least as it relates to capital investing back in the business. And what we were projecting is as we're coming out of that reinvestment period of $900,000,000 plus or minus capital going down into sort of the $800,000,000 and down going forward. And so we were advertising back in February growing cash flow as a result of less capital and expanded margins. All of that is remains true and we feel stronger about it than ever.
It's just we can't predict. As I've said, we have been impacted. A lot of it, Paul Tomory has spoken about we So I think from what is it if you're asking me what is the right sort of dividend if 1,000,000 when we get there. Look, we'll look at what's out there. We'll benchmark off of our peers and our comps.
And what I've also said is for us, I think the signal would be keep an eye on there's a sequence to me that makes a lot of sense here. And as I said, we just made an initial $250,000,000 out of the $750,000,000 repayment on the revolver. I think the signal I'd be looking for is when we do repay the balance of that revolver, that's going to signal our comfort about the COVID risk going forward. And I suspect the minute we do repay that revolver, we'll get an immediate question on the guidance reset and the return of capital. And I'd like to believe if everything holds together, that's a conversation we'll be having in the fall.
Okay. And maybe just to sort of clarify, you mentioned sort of benchmarking it. One approach, I guess, is looking at yields perhaps for peers. But I guess I would note that most of the peer group I guess is trying to determine their payout levels based on significantly lower gold prices, which presumably would affect what your levels would be as well. Is that how you would look at things too?
Or are you more comfortable, I guess, using higher payouts maybe based on the current environment?
Yes. Look, Josh, I think we're inherently conservative. I mean, I think someone hurt you, maybe we're too conservative. We're going to be the same when we think about this. We're going to be reasonable and we're going to be appropriate.
We still budget at $1200,000,000 We still do our reserves at $1200,000,000 and we will contemplate when we do get into that situation. As you well appreciate, you don't want to be adjusting or turning a dividend on, turning it off. We want to find the right level that's sustainable for the long term. And we'll adjust carefully as we go forward.
Great. Thank you.
Thanks.
And your next question comes from the line of Carey MacRury with Canaccord Genuity.
Good morning, everyone. Just maybe another question for Paul Tomory on Fort Knox. Your cash costs there have been averaging $1200 an ounce. Know there was a pit bull slide a few years back or a year back or so. I'm just wondering with Gilmore set for completion in Q4, just how we should think about Fort Knox going into 2021 from a production and cost standpoint?
Yes. You quite correctly pointed out Fort Knox has had a bit of a rough go over the last few quarters, but we're coming out of it. The asset is doing very well right now and we expect production to start ramping up here quarter by quarter to fall in line with what's in the technical report. Yes, that's it. We're feeling a lot better about performance in Fort Knox.
So from what I recall in
the technical report, I think cash costs were somewhere around maybe like $800 to $900 an ounce. Is that still what you're expecting?
Yes, it depends on the year of course. It will be correlated to production. The higher the production, the lower the cash cost. But in aggregate over the life of mine, that's correct.
Okay, great. And then maybe just on the Phase X at Round Mountain, do you have resource ounces in that phase? Or is this a new
No. So that yes, there's a big chunk of Mi and I at Round Mountain. A lot of that is in Phase X. And you'll recall when we did Phase W, we planned and designed all of the infrastructure, the situation of the truck shops, the crusher relocations and all that. We designed it to accommodate what we're calling at that time W2 and we just rebranded that X.
So this would be the next major pushback for which most of the capital other than the stripping has already been spent. It's just a little bit deeper, but what's really significant in this last quarter is that we're starting to find mineralization in the upper portions of X. And that the reason we're really encouraged about that is, of course, that would reduce the strip ratio and potentially bring a $1200 pitch shell into site. We're not quite there yet, but it's moving in that direction. So a lot of the inventory we have currently in Mi and I is in X.
While I'm on the topic of round mountain, there's another phase there called S slightly smaller that we're also working on. So there's a couple of potential mine life extensions that we're working on at Round. And for the most part those answers are in our resource inventory.
That's some really interesting Roughly
speaking, yes, just wondering like the quantum of ounces, are we talking like millions of ounces?
It's in our resource there. I mean that ex pushback with S, we're hoping to get about 1,000,000 ounces there, 1,000,000 to 1,500,000 ounces. But it's still very conceptual. It's early days and I don't want to get ahead of myself on it, but that's what we're looking at.
Okay. That's fair. And then maybe just back on Chilbatcan, given the exploration you're doing there this year, Should we be expecting a resource update next year or is that too soon to think about that?
We intend to update the resource model this year and so there will be a resource update with our year end.
Great, perfect. Thank you.
And your next question comes from the line of Tanya Jakusconek with Scotia Capital.
Yes. Good morning, everybody. Sorry, I just wanted to come back to this capital allocation, Paul, so that I understand it correctly. And maybe another way to ask you is, what minimum cash are you going to be comfortable holding on the balance sheet, to run your business so that we can kind of benchmark that to looking at excess cash flow going to dividend payments and running your business? Thanks.
Yes, sure. I mean, there's cash and there's total debt and just balance sheet metrics, if you will. I think from a running the business point of view, we get that question from time to time. And I would say generally our answer has been sort of for the day to day running of our business, we want sort of minimum $350,000,000 to $500,000,000 of cash on the balance sheet. What we're really talking about here though is just uncertainty and that is why we quote our guidance.
It's just uncertainty. And yes, we feel better today at the end of July than we did in mid March, having worked through this thus far. And certainly, as you know, with this kind of spot environment, as I alluded to in my opening remarks, if you extrapolate the spot environment to year end, if I were sort of doing a back in the envelope, I project our net debt to EBITDA is probably down in the, I'll call it, say, 0.3 kind of range from 0.7 today. So everything's headed in the right direction. And for us, it's really just making sure, as Paul alluded to, we and then maybe I'll let him speak a little bit more specifically to Tasiast.
What we're finding is as we're testing employees, most of them are asymptomatic and they get on the bus to go to the site and we find out they're positive and we have to quarantine. And so it's those kinds of headwinds and what we've been concerned about, for example, is just share headcount in, for example, the mill. And until we can kind of comfortably say we're through all of that, We're not going and again, I would say we're not it's a situation where the mill hasn't been impacted yet, but we need to know that we're likely not going to be impacted before our uncertainty level comes down. We've been very fortunate in Brazil so far where Brazil as a country has been making a lot of headlines on how they've been dealing with COVID. We've been well ahead of it with our protocols.
But having said that, in the state of Minas Gerais and in the city of Paracatu, we are seeing some upticks in COVID cases. So that's our point here. It's really not so much about the cash and the balance sheet. I think we're in great shape today. We're getting stronger.
It's really just about the uncertainty of business impact before we get there.
Okay. So whatever the gold price is the gold price and you'll generate that amount of cash flow. As long as you see a workable environment going forward, say post COVID and you kind of run your business with a minimum of that $350,000,000 to $500,000,000 on cash on the balance sheet. You have your sustaining capital, your development capital. I think you have 1 debt repayment in September of next year.
But anything above and beyond, would be open to returning to shareholders.
Would that be fair? Yes. That's right. I think as I said earlier, we triangulate around the 3 considerations of gold price balance sheet and internal capital opportunities. And I think all three of those were it not for COVID are probably green light.
Okay. And maybe just a question for Paul T. I'm just interested in a go forward basis. I'm just trying to understand what sort of costs are now sticking with this COVID impact for the business?
Well, actually, I'll just like that to Andrea. We've got some pretty specific numbers on that.
Yes. You would have seen in our disclosures that we did classify some costs in other operating costs.
Yes, I did, yes.
The biggest buckets being in Russia and at Tasiast and obviously those are our 2 those are both camp based sites. In Russia, it's more specifically sort of direct compensation related costs to pay people more that were at site for extended periods of time. We probably saw that peak in Q2. So we'll have some of that going forward, but not to the same extent. And then at Tasiast, Tasiast in total is about $10,000,000 of that other operating, dollars 6,000,000 of that was related to the strike and 4 to COVID.
And in both of those buckets are what we refer to as abnormal, more abnormal costs. So just as a result of production not being at normal levels.
Yes. I'm sorry, I was just wondering more going forward that there's going to be that additional transportation, there's the testing, there's the additional PP and E. These are costs that we're going to have to take on now for the business going forward until we get a vaccination. So what should we think those ongoing costs to be? And where are you going to allocate them in your cost structure or other?
Okay. So I'll talk about what we expect to continue and Andrew will talk about the accounting. So by far the biggest component of those costs are the camp costs and the associated overtime payments. Basically, we bring people on the site 2 weeks early, they sit around in camp and you pay them. So you're consuming space in the camp and you're paying people overtime.
So that's by far the largest component of that cost. That is an ongoing situation at Kupol and DuVois at Kupol, DuVois and Tasiast and to a much lesser extent at Toronto. I don't see that going away anytime soon. It may decline a little bit at Tasiast, but I don't see going away at Kupil. We put everybody into quarantine going at Kupil, so we can keep the site completely clean.
So I would expect that that continues through this quarter and into the Q4. At Tasiast, it will go down. As the COVID situation for us at Tasiast has crested and we're on the downslope. I would expect there it to go down a little bit, but I see these costs hanging around in the next couple of quarters. And that's for accounting, Andrea?
Yes. I mean, as you would have seen in the other operating costs, there's not really anything overly significant at any of the other sites. And there are items that like what you and Paul referred to. So we'd expect those to
Okay. Okay, thanks.
Thank you.
And it looks like we have no further questions at this time.
Okay. Thank you, operator. Thanks everyone for joining the call today and we look forward to catching up in the coming weeks months. Thanks everyone.
And this concludes today's conference call. Thank you for your participation. You may now disconnect.