First Quarter 2020 Results Conference Call and Webcast. All participants are in 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 would 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 the Kinross Senior Leadership Team Andrew Freebrough, 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 information, please refer to Page 2 of this presentation, our news release dated May 5, 2020, the MD and A for the period ended March 31, 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. This morning, we'll provide an update on how we're managing in the current environment and our quarterly results. First, however, I want to convey that our thoughts are with all those who have been affected by the pandemic. As well, on behalf of our company, I'd like to express our deepest gratitude and respect for all of the frontline workers who continue to put themselves at personal risk during this crisis. Regarding Kinross, we, like many companies, are facing various pandemic related challenges across our business.
However, through a combination of early planning, disciplined adherence to health and safety protocols and support of host governments, all of our mines remained in operation during the quarter and have not been materially impacted. During the quarter, we did not experience significant business interruptions and most importantly, our employees were healthy and safe. However, we are taking nothing for granted and have established business continuity and contingency plans to help us manage a wide range of financial and operational scenarios. Throughout this crisis, we have been working closely with our host governments and communities to aid their campaigns to control the spread of COVID. We've committed $5,300,000 in support of local efforts to provide medical supplies, equipment and food aid at our sites around the world.
Despite this challenging environment, we have performed well and we are proud of our Q1 results. Our 3 largest mines Paracatu, Cupuil Dvoinoye and Tasiast delivered strong production and costs during the quarter. Of note, Tasiast delivered its 2nd consecutive quarter of record production. As is the case with any global portfolio, there were some puts and takes during the quarter and we did encounter some challenges at our smaller mines. However, the impact of the company as a whole was relatively small.
On April 1, as part of our COVID update, we also provided a look at some preliminary Q1 results, including sales, production, costs and our balance sheet position. Importantly, our cash flow and balance sheet are well ahead of our initial budget, which assumed $1200 gold. Strong cash flow coupled with a precautionary drawdown of our credit facility resulted in a cash balance of just over $1,100,000,000 with total available liquidity of $1,900,000,000 at the end of the quarter. During the quarter, we generated approximately $110,000,000 of free cash flow and our run rate in April was noticeably stronger than Q1. To elaborate, if gold prices for the remainder of 2020 averaged $1700 per ounce, we would expect to generate free cash flow in excess of $700,000,000 for the year.
The current environment for gold, energy and foreign exchange is good for our business. Notably, the price of gold is at record levels in both the Brazilian real and the Russian ruble. If these currency levels persist, they can have a powerful impact on our cost structure and margins. For example, at Paracatu, approximately 60% of our costs are in Brazilian real, which has depreciated by more than 25% year to date. Although we withdrew our 2020 guidance in recognition of the uncertain operating environment, we will continue to work towards the original targets.
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 Q1, we produced approximately 567,000 attributable gold equivalent ounces at an average cost of sales of $7.54 per ounce and an all in sustaining cost of $9.93 per ounce. Our average realized gold price was $15.81 per ounce in Q1, up 21% from last year. And we achieved a margin of $8.27 per ounce, up 33% compared with the same period last year.
During the quarter, we sold approximately 15,000 ounces of gold fewer than we produced, largely due to the impact of the pandemic on timing of metal shipments to refineries. However, this was higher than our previous sales estimate noted on April 1 due to favorable timing of sales, principally from Bald Mountain. Our adjusted EPS of $0.10 and adjusted operating cash flow per share of $0.33 were both up compared with the Q1 last year. Adjusted operating cash flow was $419,000,000 versus $231,000,000 last year. And as Paul mentioned earlier, free cash flow during the quarter was approximately $110,000,000 which is in line with the 4th quarter.
We expect free cash flow for each of the remaining quarters of this year to be higher depending on gold prices and other external factors. Specific items that affected our quarter end cash balance included our $100,000,000 revolver repayment in February and then the subsequent $750,000,000 draw towards the end of March an interest payment of approximately $50,000,000 the first payment on our Trebakan acquisition, which was approximately $130,000,000 and a tax payment of approximately $44,000,000 in Brazil, considerably higher than last year, reflecting Paracatu's outstanding performance and profitability in 2019. Turning to income tax. During the quarter, we recorded an expense of $45,000,000 compared with roughly $28,000,000 in the Q1 of last year. You'll also notice our current income tax receivable on the balance sheet has increased by approximately $100,000,000 compared with the end of 2019.
This has two components, both of which relate to the U. S. CARES Act that was passed at the end of March in response to COVID. First, we were initially expecting a U. S.
AMT refund of $33,000,000 this year and have now increased that by an additional $33,000,000 of AMT tax credits previously expected to be received after 2020. And second, new tax loss carryback opportunities have created additional expected tax refunds of approximately $60,000,000 which also benefit adjusted operating cash flow. Capital expenditures during the quarter were approximately $191,000,000 In terms of CapEx going forward, we're not intentionally slowing expenditures. However, as global travel Looking forward on operating costs, there will be some puts and takes, including more favorable foreign exchange rates on the Brazilian real and Russian ruble and lower energy prices. On the other hand, higher gold prices will result in higher royalties.
And of course, any future operating challenges associated with COVID may also have an impact. As Paul mentioned, we continue to prepare for a wide range scenarios related to the pandemic. At this point, it is too early to accurately predict how these factors will affect the remainder of the year. Having said that, as currency exchange rates and energy prices have become more attractive, we look to incrementally add to our hedges. With relatively strong sales, a rising gold price and a $750,000,000 draw on our credit line, We ended the quarter with approximately $1,100,000,000 of cash and cash equivalents.
Including the revolver draw, our total debt stands at $2,500,000,000 and net debt is approximately $1,300,000,000 On a trailing 12 month basis, our net debt to EBITDA ratio is 0.9x. During the quarter, Moody's upgraded our credit rating to investment grade, which means Moody's S and P and Stitch now all rate Kinross' debt as investment grade. It's also worth noting our cash balance further increased in early April as we received our initial $200,000,000 draw from the Tasiast project financing. In summary, we're confident in Kinross' liquidity position today and believe we have a strong base to continue to fund our operations and projects through this uncertain environment. Now I'd like to turn the call over to Paul Tomory.
Thanks, Andrea. First, I'll let's spend a few minutes discussing some of the key COVID related initiatives and contingencies we've put in place. Then I'll move on to a summary of how operations are performing. We acted quickly with the establishment of our pandemic task force and took several immediate measures across the operation. There is minimal impact on our Q1 results, but there are likely to be minor challenges over the next few months.
In the area of supply chain, our sites continue to review all key consumables and critical supply channels in order to assess potential disruptions and to identify mitigating actions, including finding alternative sources of supply. Where possible, we've been working to increase stock of key consumables to 3 months. The one obvious standout in the portfolio is Russia, where supplies come in once a year on a seasonal ice road. For this reason, Kupol and Duvoisin have roughly 12 months of inventory, including fuel and other critical items. While we effectively mitigated any material business interruption during the quarter, we could see some negative complications if current pandemic related restrictions extend into the summer months.
Now moving to a summary of operations and projects. As Paul indicated, our 3 biggest producers continued the strong performance and accounted for 62% of first quarter production. Paracatu is our large producer and continues to see good results reflective of the asset optimization program, which was completed last year. Recoveries were lower compared with previous quarters due to anticipated variations in ore characteristics, which accounted for the decrease in production compared with Q4. Recoveries are expected to improve as we move into higher grade ore in the Q4 of this year and into 2021.
Throughput was also lower in the quarter due to unplanned down to replace an apron feeder in one of the crushers in January. Importantly, cash costs at Paracatu were lower than Q4 as a result of our continued cost reduction strategy, improved productivity supported by favorable currency. As a reminder, we filed a new technical report on Paracatu in March that outlined an increase in life of mine production by approximately 24% compared with the prior technical report from 2014, with average annual production of around 540,000 ounces from 2020 to 2,031. Turning to Russia, Kubel and Duboisin continue to generate good cash flow. Despite some early suspected case of COVID, which ultimately tested negative, our Russian operations delivered strong production during the quarter, albeit down slight from prior period due to the mining of anticipated lower grades.
We expect to return to grades more typical of what we saw in 2019 for the remainder of the year. At Chula County, we remain very excited about the prospects of this developing asset as we completed 23,500 meters of infill step out and metallurgical drilling as of the end of the quarter. Metallurgical samples from Phase 1 drilling are at the lab and results are pending. Assuming no impact from COVID, we expect to have 50,000 meters of new resource drilling ready for the resource model update at year end. The drill program for the remainder of this year will focus on step out and infill drilling for both high grade and growth confirmation purposes.
This near surface heap leachable deposit has initial resource estimate of approximately 4,000,000 ounces and has highly continuous mineralization that is open along strike and at depth. The 2020 exploration program also includes $10,000,000 for more distal step out drilling in a highly prospective and underexplored 120 square kilometer license area. We remain excited about the future of Chulakan and look forward to sharing more detailed results with you later in the year. Moving to Tasiast, not only was 2019 a record year, we had another record quarter in Q1. Our lowest cost producer for the quarter set a new production record of over 103,000 ounces.
Throughput also had a 2nd consecutive record quarter, averaging over 16,000 tonnes per day in Q1, despite the restriction on moving people in the second half of March due to COVID related government mandates. We expect to transition to the processing of stockpile material in late Q2, which will result in lower grades being delivered to the mill during the second half of the year. The 24 ks project continues to progress well. While the project currently remains on schedule to increase throughput to 21,000 tons per day by the end of 2021 and then to 24,000 tons per day by the mid-twenty 23, timing could be challenged by constraints on the global movement of people and supplies caused by prolonged COVID related travel restrictions. Finally, on Tasiast, as you will have seen in our press release yesterday, a notice was filed by labor Tasiast labor delegates and a strike action was initiated by a majority of the workers at the mine.
As a result, we have temporarily suspended non essential activities at the site, while we work to resolve this untimely dispute. The issue at hand is the quantum of the premium being paid to employees who are working longer than normal due to government mandated COVID related travel restrictions. In addition, nuggets have attempted to reopen terms of the 3 year collective labor agreement negotiated in the fall of last year. Company remains open to discussions with the union representatives as a result of the situation. There have been 4 short strikes at Tasiast since the operation began, with the average length of these labor actions being approximately 9 days and none have had a material impact on the company.
We are disappointed that delegates have opportunistically undertaken a stray action during the COVID pandemic. However, we are optimistic this will be resolved. We understand also that the labor inspector passed on a request from the labor minister that the delegates suspend their strike action given the backdrop of COVID. Moving to our U. S.
Operations, Round Mountain delivered a strong quarter for production and costs, although production was slightly lower than the previous quarter due to lower grades. At Bald Mountain, production decreased as a result of fewer tons stacked than planned in the previous quarter, combined with lower recoveries due to pH control issues. We have these under control now and our stacking rates have rebounded. Additionally, we worked through some temporary logistical challenges associated with busing employees to and from the site, while adhering to our strict social distancing protocols. However, logistical challenges became may become less of an issue moving forward as the U.
S. Appears positioned to begin lifting some restrictions. At Fort Knox, we experienced higher than planned costs due to increased rates of waste mine and impacts from COVID. We have largely worked through the geotechnical water management and heat kinetics issues in the past several quarters and expect more reliable performance going forward. The Gilmore expansion project remains on track as all critical materials and equipment have been purchased and are at site and almost all key contractors have been mobilized.
Moving to Ghana. Toronto has been a strong cash flow contributor to the company and with recent additions to reserves, we anticipate it will continue to do so. However, as we extend mine life, we are getting into extensions of the main ore bodies characterized by narrower veins, more variations in slightly lower grades and requiring multiple headings. As a result, Toronto's cash costs will likely increase versus what we've seen for the past few years, but the asset will still produce cash flow at our mine planning gold price of $1200 per ounce. For the quarter, Toronto is impacted by lower grades and by greater than anticipated mining dilution, which resulted in higher cash costs versus the same period last year.
And lastly, finishing off with our Chilean projects. At La Coipa, the workforce ramp up to begin stripping is being challenged by limitations placed on people movement within Chile as part of the country's COVID response plan. And as a result, first production is expected to be delayed by approximately 3 months to the middle of 2022. At Lobo Marte, our PFS is nearing completion and we expect to be able to release the results early this summer. To wrap up, our operations exploration and projects, our priorities continues to be the health and safety of our employees, 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. To conclude, while the world continues to work through this pandemic, as a company, we have come together with our employees in our local communities to work together to mitigate the impacts of COVID. I'm proud to say that our employees remain safe and all of our sites remained operational during the quarter. This would not have been possible without the good relationships we have with our suppliers, communities and host governments. I'd like to thank our employees who despite their own challenges have stepped up and enabled Kinross to manage through this situation.
And even with the impacts of COVID, we feel we delivered a good quarter, our projects continue to advance, and we remain in a very strong financial position. With that, operator, can we now open up the call for questions? Thank you.
We do have a question from Jackie Przybylowski from BMO Capital Markets.
Hi, good morning.
I was just wondering if maybe you could give us a little bit more color on the situation at Tasiast. I mean, I know it's difficult for you. Is this impacting the project that you're working on there, the expansion? And do you have any idea how long this might last or if there's going to have to be any kind of other intervention, government intervention or whatever in order to get the workers back on the job?
I think I'll let Paul comment on the project side of it. But no, I think Paul was trying to give some context. This isn't the first time we've had a situation like this. We are disappointed. It does feel opportunistic, but history would suggest these tend to be short lived.
And we'll work through it as we have in the past. Paul, maybe to comment a little bit more specifically as to the project side of it?
Yes. So as of right now, the project remains unimpacted. Contractors associated with both the 24 ks project as well as contractors supporting the operations are not off the job. The project is continuing. However, depending on the length of the strike, there could be impacts, but that would come after likely the couple of week scenario.
But as of right now, the project is unimpacted.
Thanks. And maybe just a question for Andrea on the liquidity side. I know you've drawn down some cash from your credit lines. How long do you expect that you'll hold that cash in your balance sheet? Or when do you think you'll be comfortable with the COVID situation or the global situation to bring that back down?
Thanks, Jackie. We would expect to repay the $750,000,000 once we're comfortable that enough uncertainty has lifted from this COVID environment, but it's just difficult to predict when that will be. I would say, we haven't used those funds and we don't currently plan to. So it's just a matter of having enough time pass and being more comfortable that the uncertainty is lifted.
Yes, this is a difficult situation to predict all around. I understand that. Thank you. Yes. That's it for me.
Thanks very much.
Our next question is from Carey MacRury of Canaccord Genuity.
Good morning. You mentioned oil prices and FX rates. I'm just wondering based on spot, what you think that can do on a dollar per ounce basis and when we could see that?
Sure. I would say I'll hand that off to Andrea, but we are getting a greater sensitivity on currency than oil right now because of some of the structural arrangements we have in place as it relates to oil. But Andrea, why don't you take a crack at that?
Sure. So, we did see some benefit in Q1 related to currencies and oil. Our forecast for the year based on current spot prices for FX and oil is somewhere in the range of $30 to $40 an ounce. So we're not 100% exposed to fluctuations in WTI. And I'd also point out that forward prices haven't dropped as significantly as the spot price.
Okay. And then maybe just on capital. Capital in Q1 was relatively low compared to your previous guidance. I'm just wondering with COVID impacts, should we expect capital to sort of rebound back to more towards the guidance range? Or do you think there's an opportunity to reduce that this year?
I can start and then Tamari may want to jump in. What I'd say is the CapEx for Q1 is it's not atypical for Q1 to be a little slower to ramp up on CapEx. And we have withdrawn our guidance, but
And I'll add a couple of points on the timing of CapEx that's happening here. A large amount of our capital expenditures this year are stripping related and 2 impacts there that are moving CapEx down. 1, of course, is the oil price, a large proportion of the stripping dollars associated with fleet movements. So there's an oil price impact. But in the case of a couple of our sites, Fort Knox and Tasiast, our mining rates were impacted as a result of COVID related restrictions, meaning we didn't have as many people at site as we would have liked.
And so mining rates were lower in the second half of March. Some of those conditions persist, particularly at Tasiast. So there might be a trend showing up on Tasiast Capital stripping that is lower than we would have planned. The other factor driving capital this year will be potential impacts to our large capital projects stripping aside. So for example, La Coipa, we've already signaled a 3 month delay on that project, primarily related to inability to get a workforce ramp up to do the pre stripping due to COVID related restrictions.
And so there will be some slide out of the capital at La Coipa from this year to next year. And the other one is Tasiast, the project itself. We haven't signaled the delay yet, but should some of these restrictions, particularly around the ability to move expat technical experts around the world, of course, right now, nobody is flying anywhere. Should those restrictions persist for a long period of time, we will see a slippage in the schedule of Tasiast and an associated pullout of CapEx. So the way I characterize it is we're probably going to end up lighter than we had budgeted on CapEx, but it's really too early to say where that number will land given some of the uncertainties that I've described.
Okay. And then maybe one last one on Tasiast, the 16,000 tons a day, is that a function of just how the mill is performing or is there a bit of or hardness mix in that?
No, it's all about mill performance. The mill is doing exceptionally well. We're getting used to operating it at these higher throughputs. And what we're going to start to see over the coming months and quarters is continued incremental ramp up in throughput as we start to complete element of the 21 ks project for incremental debottlenecking. But it's not an ore it's not primarily an ore related thing rather than really good performance out of that mill as we get used to running it.
Okay. Thanks guys.
Our next question is from Tanya Jakusconek of Scotiabank.
Yes. Good morning everybody. Paul, just continuing on Tasiast, you mentioned that should we continue to see travel restrictions on expats persist for a long time that we sort of will start slipping on that schedule. What is persisting for a long time? Are we talking about a month here or are we talking that we'd need to see by the end of this year, just a timeframe for what would cause slippage on that front?
If we were not able to get expats into Mauritania, say, by July, August, we will start to see that 1st weeks and then potentially months being added to the schedule. However, as I alluded to in the last question, there are certain element this project is not a get it's not an all or nothing project. There are various debottlenecking stages. So for example, we're right now working on a tailings boost to pump that allow us to get rid of that bottleneck, be it bringing in new interstate screens. Those two elements will come online really irrespective of restrictions, so we'll get some incremental throughput upside.
But to specifically answer your question, if we can't get expats to site by July, August, September, we're going to start to see some slippage in the project.
And in terms of other slippage, how are you doing on the pre strip there? I mean, I would assume that less people on-site, maybe less people
Yes, correct. Yes. Yes, correct. So at Tasiast, our mining rate in the Q1 was not what we would have liked it to have been. To begin with, it was already very aggressive mining rate as we dive for higher rate over in West Branch IV.
But with the COVID related restrictions, Mauritania had imposed more stringent restrictions on the local movement of people within the country. So we didn't have full crews. Those restrictions have now been lifted, but we're still starting to operate. We were behind our plan. So as I mentioned earlier to Cary, we do see some lower CapEx as a result of that at Tasiast.
Now what is the impact of that? The impact isn't huge because one way or another we got to mine it. And at Tasiast, we have eternal stockpile. So should there be a delay of access to the next phase of high grade ore out of the pit, it just means we have to subsist on these lower grade stockpiles for a longer period of time. We're into those stockpiles anyway in the back end of Q2 this year.
It would just mean that those stockpile periods are extended.
Okay. Thanks for that color. And maybe just a higher level question. I appreciate, I mean, some of these things are fluid, so may not have all of the answers. But when you look at what the productivity of your workforces have been with this COVID.
Would you say that your productivity is still intact?
Yes, I think yes, go ahead, Paul. I think our people have stepped up and go ahead.
Yes. Productivity is we keep a very close eye on that. We do weekly COVID response meetings and we do track productivities. We have some really good things. So for example, Paracatu just set a record 18 straight days without any downtime.
It's first time the site has done that length of a period of time. So we do see spotlights in the company where we're performing really well. But there will be an impact to productivity. So for example, at Bald Mountain, the crew buses that go down from Elko previously, you could put 55 people on one of those buses. Now you can only do 12.
So if Nevada doesn't rule some of those restrictions, then yes, we'll start to have these little impacts for characterizing these paper cuts. Pretty soon, they start to add up to something that could be a little bit more material. But as of right now, though we have stresses on the productivity across the company, we're not terribly worried about them at this stage.
That's good. And if I could just ask one last question on just like the additional costs from COVID. I mean, it appears that they are being more than offset by the FX and oil tailwinds. Is that a fair comment?
Yes, absolutely.
Okay, great. Thank you and good luck.
Thanks. Our next question comes from Anita Soni of CIBC World Markets.
Hi, good morning, everyone. Question, just following up on the capital, but the free cash flow that you mentioned at current spot prices, I think you said $700,000,000 for the year, That's assuming the full capital spend that you had originally guided to?
Yes. And the existing hedges in place, it's just continuing it out as per our budget this year, but just with that higher commodity price, yes.
Okay. And then just a second question on the capitalized interest. Is that a good go forward rate, the $22,000,000 that went through investing activities this quarter?
Andrea, do you want to take that one?
Yes. It's what we've provided guidance on capitalized interest at the start of the year. So that still stands. But yes, what you're seeing in the quarter is basically what you can expect for the year.
Okay, great. Thank you.
And we have no further questions at this time.
Okay. Well, thank you, operator, and thank you everyone for joining us today. Keep safe everyone and we'll keep our heads down and keep running our business and we're looking forward to getting on the other side of this and catching up with you all in the future. Thanks for joining us this morning. Thanks.
Ladies and gentlemen, thank you for joining us today. You may now disconnect.