Kinross Gold Corporation (KGC) Q2 2012 Earnings Report, Transcript and Summary

Hello, this is the Chorus Call conference operator. Welcome to the Kinross Gold Corporation's Conference Call and Webcast to discuss Q2 2012 Financial Results. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Erwyn Naidoo, Vice President, Investor Relations. Please go ahead, Mr. Naidoo.

Thank you very much, and good morning, and welcome to Kinross Gold Corporation's conference call to discuss our 2012 second quarter results. With us this morning, we have John Oliver, our Chairman; Paul Rollinson, our Chief Executive Officer; Paul Barry, our Chief Financial Officer; Brant Hinze, Chief Operating Officer; as well as Glen Masterman, our Senior Vice President, Exploration. Before we begin this morning, I'd like to bring your attention to 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 financial results and performance being different from estimates contained in our forward-looking information, please refer to Page 2 of this presentation, a news release dated August 8, 2012, as well as the Management Discussion and Analysis for the same period and our annual 2011 Management Discussion and Analysis, as well as our AIF, all of which are available on our website. I will now turn the call over to John Oliver, the Chairman of Kinross Gold Corporation. Go ahead, John.

Thanks, Erwyn, and good morning, everyone. In the wake of our announcement last Wednesday, I wanted to take the opportunity to personally introduce you to our new CEO, Paul Rollinson. Tye Burt made many outstanding contributions to this company, but in the end, the board decided that a change was in the best interest of our shareholders. We were extremely fortunate to have someone with Paul's knowledge, experience and a skill set as part of our management team to step in as CEO. Paul has been with Kinross for 4 years. He knows the company intimately and he's greatly respected by his peers and his fellow employees. We have found him to be an incisive strategic thinker, a practical problem solver. He will hit the ground running, which was a very important advantage, given the immediate challenges that we face. Some may think that because Paul was already part of the management team, you can expect more of the same at Kinross. Let me assure you the status quo is not an option. We are looking for a new approach at Kinross, and we are confident Paul brings a different management style and different focus. Our goal is, as a board, is to continue to build this company, for Kinross to realize its potential for shareholders, through the capital and project optimization process that the company has already embarked on and through additional measures focused on enhancing our operational performance. That's the mandate we've given Paul, and that's how we'll measure his performance. An important fact that people should remember is that he is educated both in mining engineering and geology. This was a key factor in his selection. As you will hear from Paul, he intends to be closely focused on operations and the basic -- basics of our business. And that is something we are very keen to encourage. On that note, it is time for me to let him speak for himself. So let me introduce our new Chief Executive Officer, Paul Rollinson. Paul?

Thank you, John, for the kind introduction, and good morning to you all. I'm honored to be here today as CEO of Kinross to talk to you in the context of our second quarter results. I would first like to acknowledge Tye Burt's contribution to Kinross over the past 7 years. Tye significantly upgraded the portfolio. He expanded the production, tripled the resource base and put in place a solid team of people throughout the organization. Many of you on the call today know Tye well, and I hope you will join all of us at Kinross in wishing him the very best in his future endeavors. Today, I will provide you with a brief overview of what I see as my key priorities in the coming months. I will then ask Paul Barry to provide an update on our quarterly financial results, and Brant Hinze, to provide an update on operations and projects. You will also have seen this morning that I've promoted Brant to the role of President and COO. This appointment underlines our renewed focus on operational fundamentals and reflects the excellent work that Brant has done since joining the company. I have also expanded the roles of 2 other key members of our senior leadership team to streamline our management structure and to increase the efficiency of decision-making. Geoff Gold will assume responsibility for corporate development in addition to his existing responsibilities as Chief Legal Officer. And Jim Crossland, who becomes our Executive Vice President of Corporate Affairs has added investor relations to his existing portfolio of responsibilities. Kinross has a solid foundation in its people and in its assets and a tremendous potential to generate value. At the same time, our industry is facing some serious challenges with cost escalation, both in new projects and in operations. As well, many producers are encountering difficulties in delivering on project schedules. And all of this has created an erosion of investor confidence, which many gold producers have seen reflected in their share price. Kinross, obviously, has not been immune to these problems. And there are no easy answers to solving them. That said, I believe that we took a very important first step earlier this year when we announced our capital and project optimization process, which adjusted our framework for growing the company in a much tougher global environment. The board has given me the mandate to continue to advance that process. And as John said, that doesn't mean continuing with the status quo. What it does mean is taking our process to the next level. We need a rigorous, bottom line-driven analysis and a disciplined process in everything that we do. There are 3 basic principles that will guide our strategy as we move ahead. Number one, managing for value. This is an overarching principle that has to apply the decision-making at both our existing operations and at our growth projects. Our focus needs to be firmly on optimizing our free cash flow. I believe the rigorous analysis in the capital and project optimization process is leading us in the right direction to make prudent choices about every dollar we invest. Beyond projects, our next step will be to apply the same level of rigor to the decisions we make at our operations. In general, I believe we need to be much more aggressive in our attack on escalating costs. Obviously, there are costs we can't control. But on those we can control, we're going get straight to work. To that end, we are initiating a company-wide cost reduction initiative, with a focus on reducing operating, capital and other costs across the organization. We can leave no stone unturned in an effort to cut waste and build free cash flow across the company. We are just getting underway with this initiative, and I expect to have further news to report to you in the weeks and months ahead. This value-driven approach may lead us to make some tough choices. But these are tough times for the industry and for our shareholders and we won't shrink from what's doing in their best interest, even if it means a break from the past. Number two, focusing on fundamentals. We must deliver on our key metrics at our operations. They are the foundation of our business and the engine for generating the cash we need to deliver return to our shareholders and to fund growth. We have a solid portfolio of operating mines, and we need to get them firing on all cylinders. Right now, we have some operations that are performing very well. For example, in Russia, in North America, in some operations that are not where we would like them to be, for example, in West Africa. I also believe that even operations that are meeting expectations may have the potential to deliver more. One of my first priorities in the coming weeks will be to visit our people on the ground in the regions. I intend to ask a lot of questions and do a lot of listening. I have a particular interest in operations, and I intend to spend a great deal of time working closely with Brant and our operations team to support them in their efforts to improve performance. Getting the fundamentals right also applies to how we work as a company, ensuring our people are focused on the right priorities, improving our decision-making and efficiency, becoming more entrepreneurial, challenging conventional wisdom and remaining open to new ways of doing things. These will be key priorities for me in the period ahead. Finally, number three, taking the time to get our projects right. Our capital and project optimization process has underlined the need to ensure that we have both the right scale and sequence for our projects. It is also important that they are properly suited to the evolving realities of the industry and fit the parameters of our strict capital allocation framework. At Tasiast, we have made the decision to proceed with the previous pre-feasibility study for a smaller mid-sized mill in the range of 30,000 tonnes per day. With capital cost rising everywhere and cost overruns a common industry theme, we see potential advantages to a smaller, mid-sized mill configuration that we can develop with lower capital and less execution risk than a bigger mill and potentially, with the ability to expand down the road depending upon market conditions and capital availability. At Tasiast, we are not operating -- offering today an updated timetable for project development. Although some delay is likely while we complete the 30,000 tonne per day PFS. This underlines our intent to proceed cautiously and deliberately at Tasiast and at all of our projects. This may be viewed as a more conservative approach, but I believe it is appropriate given where we are as a company and given the challenges facing the industry as a whole. That said, Brant will be talking more about this. I am pleased with our progress at Tasiast, where we have a solid team. I had the honor of meeting Mauritania's president, Aziz, a few weeks ago. I am very impressed with his administration's expressed desire to support the mining industry and to promote foreign investment, generally. I believe that Mauritania has the potential to become one of the world's great mining jurisdictions. In Chile, at Lobo-Marte, we are also looking at the option of a smaller scale operation than what we had previously envisaged. And given that Lobo-Marte is further back in our development pipeline and in the interest of reducing our capital spending, we have taken the decision, effective immediately, to limit spending on the project to permitting and further study work. So those are a few of my top-of-mind thoughts as I enter this new role. Obviously, these are very early days for me, and I look forward to having more to share with you in the coming months. I'd like to now hand the call over to Paul and Brant who will fill you in on the details of our second quarter, starting with Paul Barry, our Chief Financial Officer.

Thank you, Paul. Second quarter revenue was $1 billion, driven by consolidated sales of 641,000 gold equivalent ounces. Second quarter attributable production cost of sales from continuing operations was $725 per gold equivalent ounce, up 27% from Q2 2011, primarily due to increased processing lower grade ore and higher input costs, such as energy, labor and consumables. Attributable byproduct cost of sales was $658 per gold ounce. Kinross margin per gold equivalent ounce sold was $843 for the second quarter, a decrease of 4% compared with the same period last year, primarily as a result of higher production cost of sales per ounce for the quarter. Second quarter adjusted net earnings from continuing operations were $156 million, or $0.14 per share, compared to $223 million, or $0.20 per share in the second quarter 2011. Second quarter adjusted operating cash flow from continuing operations was $271 million, or $0.24 per share. Q2 net earnings from continuing operations were $116 million, or $0.10 per share, compared with $244 million for the same period last year. Reported net earnings were lower mainly due to lower production and increases in production cost of sales, which were offset by a higher realized gold price. Kinross continues to maintain a strong liquidity position. Cash and cash equivalents at June 30 were approximately $1.3 billion. Capital expenditures were $431 million for Q2, compared with $409 million in the second quarter of 2011. The increase was due mainly to project-related expenditures at Tasiast and capital mine development at Fort Knox and Round Mountain. Turning now to our production and cost outlook for 2012. Due to the disposition of Kinross' 50% interest in Crixás, we have removed Kinross' share of Crixás' full year production forecast of approximately 70,000 gold equivalent ounces from the consolidated 2012 production forecast. As a result, we now expect to produce approximately 2.5 million to 2.6 million gold equivalent ounces this year, compared with our previous forecast of 2.6 million to 2.8 million gold equivalent ounces. Production cost of sales is expected to be $690 to $725 per gold equivalent ounce, as a result of higher production cost of sales per ounce in West Africa and South America. As detailed on Slide 7 of the webcast presentation, we have made some adjustments to the production ranges of our regional guidance, as South American guidance has been adjusted to reflect the sale of Crixás and West Africa has been reduced to reflect lower than expected production from Tasiast. Due to expected higher silver production from continuing operations in 2012, we've also revised our by-product guidance from continuing operations to 2.35 million to 2.45 million gold ounces and 9 million to 9.5 million ounces of silver, with by-product cost of sales expected to be $605 to $655 per gold ounce. We've also adjusted our DD&A guidance. It is now expected to be approximately $235 per gold equivalent ounce compared to our previous guidance of $200 per ounce. Overall, we remain on track to be within our full year production forecast, excluding the adjustment for the sale of Crixás. I'll now turn the call over to Brant Hinze.

Thank you, Paul. Driven by strong results at our operations in North America and Russia, Q2 gold equivalent production increased 8%, and production cost of sales decreased 2% compared to Q1 2012. In North America, the production increase at Fort Knox and Round Mountain compared to Q1 was a result of improved heap leach production. Production cost of sales increased -- improved for the region compared to Q1, mainly due to higher production. We expect North America production for the full year to be at the high end of production guidance range for the region, as we expect production to increase in the second half of the year, mainly due to accelerated heap leach processing and improved mill processing grades at Fort Knox. At Kupol in Russia, production improved significantly in the second quarter compared to Q1, as a result of record-high mill throughput and improved gold grades, offset by the gold-to-silver ratio. We expect 2012 production to be at the high end of Russian regional production guidance range. In West Africa, regional results for the quarter were negatively impacted by lower-than-expected production and higher costs at Tasiast. Performance at Tasiast in Q2 was impacted by several factors, including lower-than-expected mill grades from the Piment orebody, lower-than-expected dump leach production and the illegal work stoppage in June, which resulted in 4 days of lost production. With respect to lower-than-expected mill grades in the Piment orebody, we are undertaking further analysis to better understand the variability in gold rate that has been encountered in the banded iron formation-type ore currently being mined in the Piment pits. It is anticipated that mill grades in the second half of 2012 will be lower than previously expected, and that Tasiast production for the second half will be lower than planned. We do not expect that similar grade variability will be encountered in the Greenschist-style mineralization in the West Branch orebody. Leach production at Tasiast continued to be impacted in the second quarter by the near-surface felsite in the West Branch. This material was placed on the dump leach and affected gold production from the leach pads. We are now stockpiling the felsite material to be blended and milled at a later date, and the leach pads are now percolating as expected. Additionally, we expect that dump leach production in the second half will be negatively impacted due to inefficiencies in the existing water pipelines, which are reducing the amount of make-up solution available for leeching. We have constructed and commissioned an additional water pipeline drawing water from the current bore field, and repairs will be made to existing pipeline. We expect that water availability will improve as we progress through the second half of the year. Chirano's production for the quarter was lower than Q1 2012, as a result of lower plant throughput, which is due to crusher and mill maintenance issues and periodic electric power outages. Second quarter results of our South American operations were lower year-over-year, mainly due to anticipated lower grades at Maricunga and lower silver grades at La Coipa, as well as less favorable gold-to-silver ratio impacting equivalent gold production. Production at Paracatu increased year-over-year due to higher mill throughput. However, the mine experienced lower grades and recoveries, which contributed to higher unit costs. We expect production at Paracatu to increase in the second half of the year due to higher anticipated grades and expected improvements in recovery and operating efficiencies. La Coipa production is also expected to improve in the second half, as the operation shifts from processing mostly lower grade stockpile material to processing ore from the Can Can and Ladera Farellon pits. We continue to advance the capital and project optimization process with Tasiast and Dvoinoye as our key development priorities. At Tasiast, we analyze a number of processing options with the aim of identifying the optimum processing approach for the orebody. Based on the extensive analysis and modeling of these options, we have elected to undertake a pre-feasibility study for the construction of a mid-sized CIL mill in the range of 30,000 tonnes per day, with the potential for further expansion. The case for a mid-sized, expandable CIL option is based on a better understanding of the Tasiast orebody and mine plants, a better understanding of the operating costs in Mauritania based on our 2 years of experience with the current operation, as well as the impact of current pressures on capital costs that we're experiencing across the industry. Our initial analysis indicates that a more flexible and stage approach to development of Tasiast, while resulting in lower production in the initial years, may reduce initial capital costs and project execution risk, while delivering a rate of return comparable to a larger initial mill. We expect to complete the pre-feasibility study on a CIL mill in the range of 30,000 tonne per day in the first quarter of 2013. Heap leach testing will be completed in the fourth quarter of this year and the results will be evaluated as part of an overall processing strategy. During the second quarter, we received approval from the Mauritanian government for the project, EIA, which covers all proposed mining and processing activities that are expected to occur within the mine site boundary under various development scenarios. Construction of the Dvoinoye project progressed well through the second quarter. Underground development is progressing ahead of plan with 1,400 meters completed during the quarter and is now 37% complete. Total underground development has passed 3,700 meters since it began in 2011. Construction of the surface infrastructure and facilities has continued as planned and is 22% complete. Expansion of the temporary camp to 400 beds was completed successfully and now accommodates all construction and underground and exploration personnel. Foundations for the permanent camp are near completion and a construction of the facility has begun. Construction of the all-season road between Dvoinoye and Kupol has progressed well. And 51 kilometers of the total 84 kilometers are now complete. All necessary permits for the current scope of the underground development and construction activities are in place. Dvoinoye remains on schedule to deliver first ore to the upgraded Kupol mill in the second half of 2013. At FDN, negotiations with Ecuadorian government on an enhanced economic package are progressing, with the objective of reaching balanced agreements on exploitation and investment protection for the project. In July, Ecuador's Ministry of Environment approved the EIA for the construction and operation of the underground mine at FDN, and a review of the EIA for the processing plant is continuing. At Lobo-Marte, we have completed a review to identify possible project optimization options with the aim of reducing capital requirements and project execution risk. We are considering smaller project options to those outlined in the pre-feasibility study. Further capital spending will be limited to project studies and permitting activities. Project permitting continues and is expected to be complete in the fourth quarter of 2012. I will now turn the call back over to Paul.

Thank you, Brant. I guess we'll open it up to questions.

[Operator Instructions] The first question is from John Bridges of JPMorgan. John D. Bridges - JP Morgan Chase & Co, Research Division: I'm really frustrated by how the industry is changing before our very eyes and in your own case. I just wondered if you could share with us how, if we can sort of hold the money, how your targets, bonus targets and things, are focused by the board? And to what extent they've changed from those with Tye?

Sure, thanks. Thank you, John. Look, I think, as John indicated, John Oliver, our Chairman, my mandate from the board is clear. It's to continue the capital and project optimization process, but also to implement additional measures to enhance operational performance in the cost reduction initiative. John D. Bridges - JP Morgan Chase & Co, Research Division: Or is that driven by cash cost targets? EBITDA targets? Or how is that working?

Well, look, it's early days. We're going to come back to you in a couple of weeks. I think it's not all about maximizing production or necessarily maximizing NPV. We're going to have to look at the mines on a case-by-case basis, understand what our alternatives are. And for me, the theme is really about optimizing NPV and margin. John D. Bridges - JP Morgan Chase & Co, Research Division: What's changed from the package that Tye was working with?

Sorry. What was the question? What's changed? John D. Bridges - JP Morgan Chase & Co, Research Division: I'm just wondering how the targets have changed? What's changed?

Well, I think, we're -- again, it's -- we're going to try to be much more aggressive on controlling capital operating costs and looking for ways to optimize the assets. John D. Bridges - JP Morgan Chase & Co, Research Division: So it's a financial criteria?

Well, I think returns are important. We are very much focused on returns, yes. But it's an... John D. Bridges - JP Morgan Chase & Co, Research Division: Could I just lob in one to Brant? I just wondered why the variability in the Piment grade? I just wondered what you think is going on there?

Yes. What I'll do to help answer this question a little bit more in detail is turn it over to Glen Masterman, who can explain some of the variability issues that we may be encountering in the Piment. Glen?

Thanks, Brant. John, we've only just identified the problem in recent times. But what we can say at the moment is that the grade variability we're experiencing is restricted to our information-style mineralization. The problem is only arising in the Piment pits at this point in time. Prolongation was unaffected and we've not mined enough of our reserves at West Branch to make it meaningful. The grade variability in the iron formation is related to the complex nature of the mineralization, which is characterized by short-range, discontinuous structures resulting in high-grade pods surrounded by low-grade. We believe it's going to take us about 6 months to do our work before we're ready to drill meaningful determinations. John D. Bridges - JP Morgan Chase & Co, Research Division: And since I've got you there, there was some positive commentary there about the exploration, but no numbers. Could you fill it in a little bit on what you're seeing?

Sure, John. We've been exploring 2 focuses since we wrapped up the definition drilling program last year. We've been stepping out to the south along the mine cartel at a target we're calling West Branch South, so a couple of kilometers from the main West Branch orebody. And we've encountered some encouraging drill results. And obviously, it's very early days and a lot more work to come, but we're pleased with what we're getting there. In the north, or north of the mine, in an area known as Aouéouat. It's a long strike of following the Tasiast shear zone, 10 kilometers into the -- or north of the plant into the district. We've completed a first pass program of drilling, assessing a pretty extensive part of the structure there. And again, we're encountering positive results in the first phase of drilling. We have a number of targets emerging in that part of the world. And we're currently falling out with some drill fences around the initial results to advance those targets. So again, we're pleased with what we're seeing in that part of world, and we'll be in a position to report full results at the end of the year. John D. Bridges - JP Morgan Chase & Co, Research Division: But no barn-burning results yet, but you're getting sniffs?

That would be fair to say.

Next question is from George Topping of Stifel, Nicolaus. George Topping - Stifel, Nicolaus & Co., Inc., Research Division: Could you comment on the Bloomberg article from yesterday that you've hired an advisor to defend the company?

Yes, George, we don't respond to speculations in the media.

Next question is from Jorge Beristain of Deutsche Bank.

Paul, I guess my question is, if you could give us a ballpark as to what you're thinking if you go for the smaller mill option at Tasiast, which would be, I'm assuming roughly half the size in terms of output? Could you kind of give us a ballpark? Would this be half the CapEx cost, that last quote worth $3.5 billion? Would it be about 25% less? Could you just kind of give us a ballpark as to what you're thinking would be the capital outlay for a smaller mill package?

Jorge, we can't. We're in the midst of doing the analysis. We'll get back to you once our work is finished. We don't want to make any estimates or speculate at this point.

Okay. And I had flagged this a few quarters ago in my research, but given the importance of Tasiast and proving to the market that the resources, in fact, are really as large as you believe, could you point us to the timing of when you're going to release updated drill results there other than the vague commentary you included that you're explaining? You're pleased with the results, but when could we expect to get updated drilling information from Tasiast?

Glen, why don't you tackle that one?

Yes, Jorge, Glen Masterman here. I -- the -- as I mentioned earlier to John, we'll be in a position to update all of the exploration information inclusive of drill results, resources and reserves at the end of the year.

So basically, the same as the answer that Tye had given 6 months ago?

Correct.

Next question is from Alec Kodatsky of CIBC.

I just wanted to sort of circle back on a couple of questions on Tasiast, with respect to some of the challenges that you're seeing. With the high clay material, how prevalent is this? You say it's near surface. I'm just sort of curious how much of that resource is actually -- has this high clay material?

Okay. And again, what I'll do is turn that over to Glen to answer that. But before I do, I would note, as I said in our opening remarks, we are not putting this material, any felsite material on the leach pad right now. We're setting it aside and we'll deal with it later. It will either be blended if we have the appropriate rock competencies in the stuff as we go deeper into the mine or it will be put through the mill. But I'll let Glen give you a little bit more color there on the felsite material itself and the near-surface, high clay content material.

Thanks, Brant. We believe the clay challenge in the felsite is isolated to the oxidized zone at the top of the felsite host. And as we mine deeper into fresh rock, we anticipate the problem will start to go away.

Okay. So it's sort of still to be determined as far as where it resides? And is that ultimately going to have, as you gain that knowledge, is that going to have an impact in terms of where you see the dump leach going in terms of scale?

Again, I would say with the felsite material, recognizing that the near-surface, high clay content material is a bit of an issue for dump leaching. We would expect that at a later date. We'll put that through the mill circuit. As far as the dump leach itself, it will certainly impact -- it has impacted the first half of this year, and it will continue to impact us in the second half of the year for a couple of reasons. One is, we won't be putting as many tonnes on the leach pad. And as a result of the issues that we encountered in the first quarter, we don't have the inventory built up on the leach pad for leeching. So we will see an impact this year. As far as subsequent years, it's -- we'll go into the planning process and we'll make that determination as we go through the budget and planning season this year.

Okay. And I just wanted to clarify. It is a fines issue within the heap that's causing the problem?

Correct, fines with a very high clay content.

And sort of the similar question with the Piment pit and the grade variability. Is understanding that -- how important is understanding that to the eventual decision on sizing the mill in the economics?

That's a good question. And the answer is that they have no relation. What we're encountering in some of the current issues with the current operation has no relation to a decision on a future mill. Keep in mind that the future mill will be primarily designed for the Greenschist material, which we haven't even encountered yet as far as the mining. I can turn it over to Glen as well to give some additional color on that, too.

So in respect of the Greenschist Zone, which Brant just mentioned, we're confident that the grade variability issue is not going to affect the Greenschist Zone. And that is because it is a different style of mineralization where we see the ore hosted by long-range white and continuous structures. We've also done the work to understand the controls on grade distribution in the GST, and this is based on our extensive infill drilling in 2011. And that's put us in a position to model the mineralization with confidence and predictably.

Okay. And just -- if I could have one more follow-up before I pass it on. I'm just curious if anything's precluded high-pressure grinding decision yet?

No. I would say at this point, HPGRs are all part of the optimization process in review. So I would suggest that it's not off the table.

The next question is from Stephen Walker of RBC Capital Markets.

Just, Paul, a question on capital spending here in 2012. I believe the whole year budget was $2.2 billion, with slightly over $1 billion to be spent at Tasiast in various forms, infrastructure and, obviously, on the existing operations. Can you give us a sense of, I guess, twofold, what monies will be spent on sort of for the balance of the year, what you hope to achieve in spending on the infrastructure and the operations at Tasiast this year, a dollar amount, and then activities that you hope to complete?

Thanks, Stephen. Look, I would say, this cost reduction initiative will be looking directly at those sorts of questions. We've just initiated it, but we'll be looking at exactly Tasiast and all of our other projects and operations. And I plan to come back to you in the coming weeks here to flush out in more detail how that capital budget will be adjusted.

Okay. And in your initial comments, Paul, you made -- maybe I misunderstood this, you said some delay is likely for the Tasiast PFS, which is expected in the first quarter 2013. Did I misunderstand that? Or was that just something that I misunderstood? Or is that what you actually are implying, that it may be late in the first quarter 2013 before we get the details? Or is that timing fairly firm in your mind?

No. I think within the first quarter is fairly firm in our minds. But what we're trying to do here is really get it right. And we're not trying to be aggressive on our timing. We're just -- we're trying to get the message across that we're here to get it right, most importantly. But we are comfortable with that first quarter.

Understood. Maybe a question for Brant. With respect to the detailed engineering drawings that had been completed at Tasiast. At the Denver Gold show last year, I had a conversation with management at that time. You suggested that 18% to 20% of the detailed engineering drawings had been completed. And I guess, the question is twofold, Brant. Where do you stand with respect to detailed engineering at this stage, granted that you're kind of starting some of the analysis over from scratch, if you're looking at 30,000 tonne per day plant? Where do you stand on the percentage that detailed engineering drawing's done? And how much of the current work is -- can be carried over into the new pre-feasibility study? I guess, what I'm trying to get a sense of is, do you have to wipe the slate clean? Or is there a percentage of some of the detailed engineering work that's been paid for and done, is carried into the PFS?

Yes, I can certainly comment on that. But let me first say that when we talk about a pre-feasibility study, obviously, at a pre-feasibility level, we have a pretty intense knowledge, in-depth knowledge of the resource itself. And we've got pretty advanced -- we've advanced a lot on our mine plants at this point. So what we have there and our knowledge there and our knowledge of the buying plans is probably more advanced than the pre-feasibility level. However, when you do go back to the plant and plant size, we have taken it back to scoping study, so that we can conduct the optimization process. And then that scoping study, which we have completed, we've done a full peer review on that scoping study, and now we have approval from the Board of Directors to advance that to pre-feasibility. So the process of scoping pre-feas and feas is ongoing, and then detailed engineering will come subsequent to that. So I would say that we are walking through the process, of a proper process to, as Paul said, to get it right. And we're not going to rush that along.

So it's safe to say, well below 20% of detailed engineering and, obviously, something closer to 10% at this stage?

Well, yes. I mean, yes. I mean that's again, from a standpoint of the study itself. We just completed the scoping study and going into pre-feas. So depending upon what the ultimate selection is, that will determine whether any of the detailed engineering that was done before will apply. So we'll, I guess the word is standby as we go through the process.

Understood. Glen, just one last quick question. With respect to the Greenschist mineralization depth, what -- where you've, obviously, wrapped mine plants around, what drill density have you drilled that down to? Is it 25-meter, 50-meter in an area that you'd view as sort of the core mining? Where you want to start your core mining? What is the drill density at this stage?

The total density at the top of the Greenschist Zone is on average, spaced around on 35-meter centers. As we get deeper into the orebody, that spacing increases to 70 meters. And we're confident that, that spacing -- or in that spacing because of our knowledge of the geologic continuity of the orebody. So we are able to step it out as we got a little deeper.

The next question is from Greg Barnes of TD Securities.

I guess this is a follow-up for Brant. But when do you finally draw a line in the sand and say, "In Tasiast, this is what we're going to build?" Is it the middle of the next year? This quarter or next year? When do you put a stake in it?

Thanks, Greg. It's Paul here. Look, I guess the answer to that is, once we finished our work. And we haven't finished our work and as a result, we're not in a position to make a recommendation. We are pursuing the pre-feas on the 30,000, but we're still tweaking the 60,000 and looking at mine planning and phasing and optimization with that scenario as well. So I can't tell you when we're going to finish that work and be in a position to make a recommendation.

When you do make the recommendation, this goes back to Steve's question, does that mean you are then moving into feasibility study?

Yes. I mean, we will absolutely. I mean, that's the process, going from scoping to pre-feas. We will leave the pre-feasibility work. We will make a recommendation to the Board of Directors. And based on that recommendation and approval, we'll move forward to feasibility study.

So let's say that will take another 12 to 18 months after that decision is made?

Don't know. Again, what we'll -- what we're going to do is let the process determine the schedule.

Okay. I know you're still working on the heap leach plan, but that seems to be taking very much a backseat. Is that true?

No. I wouldn't say necessarily that's taken a backseat. We've got a lot of work that is currently being done, a lot of test work that's currently being done in the labs for -- per leach testing. We have done the high-pressure grind work in Germany, and we have shipped all the material to McClelland Labs in Reno, and they're doing all the leach work for us. And we're at -- various columns are at various progress as far as the leach cycle, so ranging from now, just a few days, to over 40 days of leaching. But it's too early. We don't have complete information. We do, as I indicated, expect to see most of this information back in the fourth quarter of this year.

Just finally for you, Paul. You've said a couple of times now, you're going to update us in a couple of weeks about what your plans, I guess, into this cost reduction and project optimizations would be? You're going to come out with targets and rates of return? And which products you're going to shelve? And which are going to move forward then? Is that the idea?

Yes. No, I would say, look, Greg, I've been in the role for 7 days. My plan is to get out to the regions next week with Brant. And I would like to come back in a few weeks and outline the plan but -- and give more detail on direction and process. But we're not going to have this evolved to that degree in a couple of weeks. It's going to be a process we'll work on here through fall.

So what do you plan to tell us in a couple of weeks, just where you're heading?

Yes, exactly, more detail on how we're going to go at this cost-reduction initiative.

The next question is from Anita Soni of Credit Suisse. Anita Soni - Crédit Suisse AG, Research Division: My question, just regards to, I guess, one of your earlier comments, Paul, that you commented on cost you can control and costs you can't. Can you sort of give us an idea of which costs fall on the can control, can't? And I wonder that you feel -- or you don't have any control over?

Well, sure. I mean, the obvious sort of can't control is oil prices and steel and consumables and media, those kinds of global commodities. Costs we can control are our own internal or the people, our overhead, our G&A, our spend. Things within our control, we will look hard at. Obviously, we've got to work within the bounds of global commodity requirements that we use in our business. We're big consumers of oil. We're big consumers of power and we're big consumers of steel. And we have very little control over that. Anita Soni - Crédit Suisse AG, Research Division: Okay. With respect to the decision to, I guess, stop spending at Lobo-Marte, it sounds like you were saying it was more tied to the schedule or the -- that it was further down in your development pipeline. If the framework for sort of making investment decisions, I guess, now is more along the financial basis, would you not bring that back into the frame? Put it sort of head-to-head against Tasiast and say, "Perhaps this is what we need to focus on first, whether or not we had previously, now that this would go ahead in 2016 or '17, and perhaps this is the one we need to accelerate. And while we're taking our time to study Tasiast, this is the one that we need to go." I mean, why shelf Lobo-Marte for now?

Well, thanks for the question. I mean, really, the capital and project optimization process that we announced in January was really to make those kinds of decisions. And as part of that review and study, we've determined that the sequence -- that there needs to be a sequence. And that in that sequence, we believe that Lobo is one that we would stack out behind Tasiast and FDN. Anita Soni - Crédit Suisse AG, Research Division: So I guess what I'm driving at is, what were the key drivers that made you decide that Lobo needed to go after Tasiast? I'm trying to understand why that decision on timing was made?

The -- I think Tasiast has been a key focus for the company. We are well and truly into it. There's a lot of activity, a lot of spend and the work and the knowledge and the understanding is much more evolved than is the case with Lobo-Marte.

And I would also suggest that we didn't say that we're stopping spending. We said we're stopping site activity. So we're continuing to advance permitting and we're continuing to advance the studies.

Next question is from David Haughton of BMO Capital Markets.

Obviously, a lot of questions on Tasiast, so I'll put my questions in on that theme as well. You've mentioned quite a few times, your detailed understanding of the geology and the orebody. The introduction of the 30,000 tonnes per day option, is that as a result of the change in understanding of the orebody? Or is it more a reflection of the cost in the infrastructure demands?

I would offer up that the knowledge of the resource itself has been advancing. With the extensive drilling program that we have last year and the full interpretation of that and as well to the advancement of mine plans, our knowledge has been evolving on that resource itself. And I would also suggest, as Paul mentioned, looking at the cost pressures in our industry in particular, we've seen what has happened with some of the capital blowouts around the industry. It certainly does have -- it does enter into our decision process.

Okay. Given the first part of your answer then, Brant, does that mean that the higher grade portion of the orebody that would be best suited to milling is smaller than what you had previously envisaged and that the lower-grade halo is greater?

No, it doesn't suggest that at all. And what I'll do is I'll turn it over to Glen, so that he can add some additional information to this discussion.

Thanks, Brant. David, the orebody, and I'm referring specifically here to the Greenschist Zone, which constitutes the bulk of the resource, remains unchanged based on our evolving knowledge and what we've communicated previously. So we still see a high grade portion and a low grade envelope around the orebody. And in other words, the gold is still underground. There is no change in that.

Yes, and I would say that the change is in the approach that we take with it and has a lot to do with the mine planning and the sequencing of the pits and the phases.

Okay. And there is a suggestion that it could be a modular kind of build, so that you might get to a larger 30,000 tonnes per day eventually, depending upon cash flow and the ability to supply ore. Does that also then feed into the kind of regional work that Glen has been doing as well?

There's no doubt. I mean, we're in the early stages of our understanding of this entire district. We've got 80 kilometers to understand. And given that fact, it's just prudent on our part if we do advance to construction, a 30,000 tonne a day, that we advance that with the thought of expandability. So I would suggest, absolutely. We do need to consider this if -- again, if we do make the decision to construct a 30,000 tonne a day, we consider it an entry into the district.

Okay. And the infrastructure would have to be provided accordingly then with the view of perhaps this being one of a multistage development?

Sure, absolutely.

Switching over to Paracatu, fourth ball mill coming into place this quarter. Would you expect the plant 2 to get up to the 41,000 tonnes a day kind of level through the back end this year into the early part of next year? Is that the kind of throughput that we should be thinking about?

Yes. I would say that with the addition of the fourth ball mill and recognizing that part of the reason for the fourth ball mill was to compensate for increases as we go deeper into the mine of hardness. But I would suggest that there's every expectation right now to achieve our goals with that fourth ball mill addition.

Okay. So a much stronger 2013 head in comparison then to 2012 as a result of that additional grinding capacity?

As far as 2013, as we go through the budgeting and planning process this year, we'll certainly give some guidance on that as we work through it.

All right. And finally on Lobo-Marte, I had a few discussions there during the course of this call. But are you still looking at this as a regional solution? Are you still trying to integrate this potentially in with the existing Maricunga and La Coipa projects? Is that going to add to the time line of your decision-making on this project?

Well, I would say that there are numerous opportunities to take advantage of synergies there in Lobo-Marte, when we do make a development decision on that would certainly be part of it.

The next question is Don MacLean of Paradigm Capital.

And I think David Haughton captured the essence of, I guess, my question. But in the kind of market we have right now, when you see words like a better understanding of the Tasiast to orebody and possible potential for future write-downs, and those are kind of -- those are big net-type comments and in this market, that tends to be read as fairly ominous. So what I was just going to ask you and the guys to do is maybe give a bit more color, more character to that comment about the better understanding of the orebody? And I think Glen's touched on some of that with his confidence about the Greenschist, but has there been any substantial change to the view of what the resource quality, quantity was compared to when you entered into the transaction with Red Back? Give us a sense of maybe, boost our confidence?

Don, I'll comment on, I guess, the character of the orebody and how it's evolved to relative to when we built the case to the project and that is, that it's lived up to our expectation in terms of resource quantity and quality.

Both in quality. And when you talk about quality, are you referring to grade? Or is it the sort of a continuity relative to the strip ratio, Glen?

Don, it's both of those factors. It's the continuity. That's one of the, I guess, attributes that impressed us very early on. And we've established that deeper in the orebody. So we're confident about that. And the grade, the Greenschist Zone is the sort -- is the high grade portion of the resource, and it's been modeled with a high degree of confidence and predictability.

I guess, metallurgy has been a bit of -- and typically is unknown when you'd step into these things, but there's been a bit of a concern. What portion of the Greenschist Zone would maybe coming to this issue about clay or the oxidized surface that might be impacted on the heap leach side of the equation, Glen?

Don, based on what we know at the time, the -- at this moment in time, is that the Greenschist orebody will not be affected by this clay problem. The clay is developed at a very high level in the oxidized zone of the orebody zone. In other words, the top part of the orebody. As we get deeper into the fresh rock sulfide zone, the clay does not become an issue. The other point to note is that the clay challenge is isolated to a rock known as the felsite. We're not seeing it in any of the other rock types -- all rock-types hosting ore, such as the iron formation in the Greenschist Zone. So we're confident that it's not going to be an issue for us as we get deep in the orebody.

Okay. And maybe sort of on that thought, Glen. I think when John Bridges was asking his questions about the exploration and the sort of the final comment was no barn-burning results to this point, but lots of sniffs. If you look at the amount of money that's been spent on the exploration, I guess, personally as an observer, when I think a lot of us feel this way, we're kind of surprised that something else hasn't jumped out. It's of substance to this point, but maybe you could characterize how well-explored that trend is and your optimism on that front? On a scale of 1 to 10, how well-explored is it?

Sure, Don. On a scale of 1 to 10, it's, I would say, in terms of effective exploration, less than 5. So a long way to go. And, yes, we're really just getting started in a type of district that takes many years to explore and be successful. And, of course, as we go, we're learning a lot of about the geology and how to target where the next orebody may be. I'll just come back to my initial comments about the exploration went to the north of the plant in the Aouéouat area, about 10 kilometers north. Our first parts of drilling along the Tasiast structure delivered very encouraging results on many of the sections we drilled. And so for our first pass, we are really pleased with those results. Obviously, a lot more work to come. And as I mentioned, in terms of effective exploration, it's very early days.

The next question is from Steven Butler of Canaccord.

Paul, a question for you on FDN project. Do you guys have a sense of your time line for concluding a revised fiscal agreement there? And what would you need? What would you prefer to see? Obviously, lower taxes overall, but is there a trigger here where you would say, "Let's go ahead based on a 5% or 10% or just below 52% tax burden?"

Yes. I -- look, it's -- we're in the middle of a negotiation with the government, as you know, Steve. I think those negotiations are progressing well. We recently saw a bit of a trial balloon where the government has acknowledged it is considering changes to the windfall profits tax. So look, I think, in my opinion, it remains one of the best undeveloped ore deposits in the world. It's moving along, but our spend and our rate of development will depend on a successful completion to our negotiation on the exploitation and the investment agreement. But given the sensitivity of that, I wouldn't want to speculate on specific triggers or details.

That's fine. And, Brant, in the theme of striving for lower costs maybe, and your biggest asset or least contributor to NAV for me is Paracatu with costs of $914 an ounce in Q2. And if we were to get the reserve grade and if we were get to about, I think, 79% target recovery, those costs on Q1 would've been maybe $800 an ounce. But are you thinking costs here can be lower than that ultimately, longer-term? Will the fourth ball mill drive unit costs per tonne lower or will that actually just represent more power consumption and, therefore, higher costs per tonne as an offset?

Yes, and I appreciate the question. Going into the second half of the year, we certainly see Paracatu performing better than the first half. We will see better grades there. We expect to see better recoveries, and we've got an enhanced team in there. We've supported the existing team with some real strong people. And we expect to continue to improve efficiencies out of that plant. Keep in mind, and I think it's probably really important to note that we've been building that thing for 3 years. And it's actually going to be a pleasure to have the fourth ball mill constructed and allow our people to actually get in there and operate that thing and optimize that plant and focus on cost. And that's, as Paul mentioned earlier, that's going to be a big theme for us across all of our operations and all of our projects to focus on costs, both operating and capital costs, and do everything that we need to do, and that's rational to do in optimizing and improving costs, and that includes Paracatu.

Sure. Do you guys have any reais cost or considering any reais hedging, excuse me?

We do. This is Paul Barry, the CFO. And we've got a program to hedge our currency, our foreign currency exposure over 3 years. It's a rolling monthly program, about 75% of our reais exposure is hedged in year 1, some 50% in year 2 and 25% in the third year. And we've had that in place now for about 1 year.

This is all the time we have for questions on today's call.

Thanks, everyone.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.