On September 17, 2020, Kinross Gold announced its robust three-year guidance.

Production is expected to increase steadily by 20 percent to 2.9 million gold ounces equivalent (plus or minus five percent) by 2023, and a general downward trend in production costs for sales and investment is expected to boost strong free cash flow.

The company also announced that its board of directors will pay a dividend of USD0.03 per common share on October 22, 2020 to stockholders of record after the close of business on October 8, 2020. In addition, the board of directors approved a plan to pay a quarterly dividend of USD0.03 per common share, which would be USD0.12 per common share on an annualized basis, representing an annualized return of approximately 1.3 percent based on a closing price of USD9.35 on September 17, 2020.

Commenting on the dividend and the three-year guidance, Paul Rollinson, Kinross’s president and CEO, stated, “With our investment-grade balance sheet, strong free cash flow, substantial margins, and a significant cash position, we are pleased to return capital to our shareholders in the form of a dividend. We expect to increase our production by approximately half a million ounces, or 20 percent, to 2.9 million ounces over the next three years, which is a sign of the strength of our global portfolio and our ability to optimize mine plans and find value-adding opportunities. In light of our attractive project pipeline and promising exploration results, we are also exploring further organic development options. Our growing production profile, combined with our declining cost structure, is expected to result in strong and growing free cash flow. Kinross will continue to focus on balance sheet strength and disciplined capital allocation when evaluating future value creation opportunities for our shareholders.”

Growing production and falling costs

The expected production growth represents additional ounces made possible by the planned life-of-mine expansions and projects resulting from the previous three-year phase of the company’s large capital reinvestment, which created a low-risk and timely growth platform in the current gold price environment.

Kinross’s extensive continuous improvement programs, which have increased productivity and operational efficiency, and its exploration strategy, which focused on promising prospects around existing operations, also contributed to the expected increase in production.

Kinross remains committed to adding significant ounces to its mineral reserve estimate of 24.3 million ounces of gold as of the end of 2019, not including the company’s recent commitment of 6.4 million ounces from the Lobo-Marte Project announced on July 15, 2020. The company remains optimistic about extending the mine life in view of its large estimated, measured, and reported mineral resource base of 35.5 million ounces (excluding reserves as of the end of 2019).

The expected production growth in the next three years will be primarily due to the increased production at the Kupol and the extension of mine life at Chirano, both resulting from successful exploration programs at the two sites. Also, Kinross will make improvements to its Fort Knox mine plan, including accelerating production at the Gilmore Project. The company will continue performance improvement efforts at the Paracatu site with greater throughput, more ounces from overburden reprocessing, and higher grades from accelerated mining of the western section of the mine. Finally, Kinross expects higher production from the northern part of the Bald Mountains.

Kinross continues to expect a gold price of USD1,200 per ounce for its mining plans, including production guidance for 2021-2023 and the proven and probable estimates of the company’s mineral reserves.

Over the next three years of expected production growth, the company expects production costs per ounce sold to decline, as Kinross pushes ahead with planned projects at lower cost. Sales costs per ounce sold are expected to be slightly higher in 2021 compared to 2020 forecasts, mainly due to the impact of COVID-19; however, they are expected to gradually decrease in 2022 and 2023.

As the company moves past its previous three-year period of capital reinvestment, the annual capital expenditure is expected to decrease based on Kinross’s current production forecast. The planned investments include the initial development of the Chulbatkan Project, which has a preliminary capital estimate of approximately USD330 million for the 2021-2023 period. Kinross is exploring additional options in its portfolio that utilize its large resource base and have the potential to sustain strong production beyond 2023, which could generate attractive returns without risking significant capital.

The company is on track to meet its production costs, selling costs per ounce sold, total cost per ounce sold, and capital expenditure guidance for 2020.

Other operating expenses for 2020 will now be approximately USD140 million, compared to the previous guidance of USD100 million, primarily due to costs associated with the Tasiast strike in the second quarter, and COVID-19 mitigation measures.

Sustainable dividends

Given the robust free cash flow generated from operations and the company’s expected strong cash position, Kinross has declared a dividend of USD0.03 per common share, payable on October 22, 2020 to record shareholders at the close of business on October 8, 2020. The dividend is considered an “eligible dividend” for Canadian income tax purposes, while dividends paid to non-Canadian shareholders (non-resident investors) are subject to Canadian withholding taxes.

In addition, in accordance with Kinross’s commitment to providing shareholder value, the company’s board of directors approved a plan to pay quarterly dividends of USD0.03 per common share, which would be USD0.12 per common share annually and represent an attractive annualized return of approximately 1.3 percent, at a share price of USD9.35 at the close of trading on September 17, 2020. The company expects to announce the next quarterly dividend for the third quarter subject to board approval in connection with Kinross’s financial results. The company believes that the regular quarterly dividend is sustainable at lower gold prices and offers growth opportunities in a continued higher gold price environment.

Balance sheet strength 

On September 15, 2020, Kinross notified its lenders that it intended to repay the remaining USD500 million of the USD750 million previously drawn from its USD1.5-billion revolving credit facility in March 2020 as a precaution against the uncertainties caused by the global COVID-19 pandemic. The company repaid its USD250-million credit facility on July 24, 2020, with the remainder of the repayment scheduled for September 18, 2020.

In line with the company’s disciplined approach to capital allocation, Kinross will continue to focus on maintaining and strengthening its investment-grade balance sheet while meeting its obligations and generating free cash flow. Capital priorities of the company include maintaining existing world-class operational and environmental standards through sustained capital expenditures. Kinross is also focused on investing in organic expansion projects that offer attractive returns and leverage existing infrastructure and experience to minimize execution risk. The company intends to exploit the opportunities to expand or increase production through targeted exploration activities, all while continuing to repay debt when maturing. Net debt is expected to be zero at current gold prices in 2021. Kinross makes it a priority to return capital to shareholders through a quarterly dividend. Last, Kinross intends to retain the flexibility to make additional attractive investments and continue raising capital.