KINROSS GOLD CORPORATION KINROSS GOLD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three and nine months ended September 30, 2021
This management's discussion and analysis ("MD&A"), prepared as of November 10, 2021, relates to the financial condition and results of operations of Kinross Gold Corporation together with its wholly owned subsidiaries, as at September 30, 2021 and for the three and nine months then ended, and is intended to supplement and complement Kinross Gold Corporation's unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2021 and the notes thereto (the "interim financial statements"). Readers are cautioned that the MD&A contains forward-looking statements about expected future events and financial and operating performance of the Company, and that actual events may vary from management's expectations. Readers are encouraged to read the Cautionary Statement on Forward Looking Information included with this MD&A and to consult Kinross Gold Corporation's annual audited consolidated financial statements for 2020 and corresponding notes to the financial statements which are available on the Company's web site at www.kinross.comand on www.sedar.com. The interim financial statements and MD&A are presented in U.S. dollars. The interim financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting". This discussion addresses matters we consider important for an understanding of our financial condition and results of operations as at and for the three and nine months ended September 30, 2021, as well as our outlook.
This MD&A contains forward-looking statements and should be read in conjunction with the risk factors described in "Risk Analysis" and in the "Cautionary Statement on Forward-Looking Information" on pages 38 - 39 of this MD&A. In certain instances, references are made to relevant notes in the interim financial statements for additional information.
Where we say "we", "us", "our", the "Company" or "Kinross", we mean Kinross Gold Corporation or Kinross Gold Corporation and/or one or more or all of its subsidiaries, as it may apply. Where we refer to the "industry", we mean the gold mining industry.
1. DESCRIPTION OF THE BUSINESS
Kinross is engaged in gold mining and related activities, including exploration and acquisition of gold-bearing properties, the extraction and processing of gold-containing ore, and reclamation of gold mining properties. Kinross' gold production and exploration activities are carried out principally in Canada, the United States, the Russian Federation, Brazil, Chile, Ghana and Mauritania. Gold is produced in the form of doré, which is shipped to refineries for final processing. Kinross also produces and sells a quantity of silver.
The profitability and operating cash flow of Kinross are affected by various factors, including the amount of gold and silver produced, the market prices of gold and silver, operating costs, interest rates, regulatory and environmental compliance, the level of exploration activity and capital expenditures, general and administrative costs, and other discretionary costs and activities. Kinross is also exposed to fluctuations in currency exchange rates, political risks, and varying levels of taxation that can impact profitability and cash flow. Many of these factors have been or may be influenced by the continued economic and business uncertainties caused by the COVID- 19 pandemic. Kinross seeks to manage the risks associated with its business operations; however, many of the factors affecting these risks are beyond the Company's control.
Commodity prices continue to be volatile as economies around the world continue to experience economic challenges along with political changes and uncertainties, including as a result of the impacts of the COVID-19 pandemic. Volatility in the price of gold and silver impacts the Company's revenue, while volatility in the price of input costs, such as oil, and foreign exchange rates, particularly the Brazilian real, Chilean peso, Russian rouble, Mauritanian ouguiya, Ghanaian cedi, and Canadian dollar, may have an impact on the Company's operating costs and capital expenditures.
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KINROSS GOLD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three and nine months ended September 30, 2021
Consolidated Financial and Operating Highlights
Three monthsended September 30, | Nine monthsended September 30, | |||||||||||||
(in millions, except ounces, per share amounts and per ounce amounts) | 2021 | 2020 | Change | % Change(e) | 2021 | 2020 | Change | % Change(e) | ||||||
Operating Highlights | ||||||||||||||
Total gold equivalent ounces(a) | ||||||||||||||
Produced(c) | 486,819 | 607,744 | (120,925) | (20%) | 1,591,939 | 1,755,363 | (163,424) | (9%) | ||||||
Sold(c) | 481,959 | 593,218 | (111,259) | (19%) | 1,586,028 | 1,738,379 | (152,351) | (9%) | ||||||
Attributable gold equivalent ounces(a) | ||||||||||||||
Produced(c) | 483,060 | 603,312 | (120,252) | (20%) | 1,579,928 | 1,742,616 | (162,688) | (9%) | ||||||
Sold(c) | 478,459 | 588,559 | (110,100) | (19%) | 1,574,362 | 1,725,778 | (151,416) | (9%) | ||||||
Financial Highlights | ||||||||||||||
Metal sales | $ | 862.5 | $ | 1,131.3 | $ | (268.8) | (24%) | $ | 2,849.9 | $ | 3,018.3 | $ | (168.4) | (6%) |
Production cost of sales | $ | 421.0 | $ | 439.4 | $ | (18.4) | (4%) | $ | 1,300.9 | $ | 1,289.2 | $ | 11.7 | 1% |
Depreciation, depletion and amortization | $ | 208.8 | $ | 204.8 | $ | 4.0 | 2% | $ | 641.6 | $ | 608.3 | $ | 33.3 | 5% |
Reversal of impairment charge | $ | - | $ | - | $ | - | nm | $ | - | $ | 48.3 | $ | (48.3) | nm |
Operating earnings | $ | 72.9 | $ | 393.4 | $ | (320.5) | (81%) | $ | 509.1 | $ | 907.1 | $ | (398.0) | (44%) |
Net (loss) earnings attributable to common shareholders | $ | (44.9) | $ | 240.7 | $ | (285.6) | (119%) | $ | 223.9 | $ | 559.1 | $ | (335.2) | (60%) |
Basic (loss) earnings per share attributable to common shareholders | $ | (0.04) | $ | 0.19 | $ | (0.23) | (121%) | $ | 0.18 | $ | 0.44 | $ | (0.26) | (59%) |
Diluted (loss) earnings per share attributable to common shareholders | $ | (0.04) | $ | 0.19 | $ | (0.23) | (121%) | $ | 0.18 | $ | 0.44 | $ | (0.26) | (59%) |
Adjusted net earnings attributable to common shareholders(b) | $ | 90.2 | $ | 310.2 | $ | (220.0) | (71%) | $ | 439.5 | $ | 631.7 | $ | (192.2) | (30%) |
Adjusted net earnings per share(b) | $ | 0.07 | $ | 0.25 | $ | (0.18) | (72%) | $ | 0.35 | $ | 0.50 | $ | (0.15) | (30%) |
Net cash flow provided from operating activities | $ | 269.9 | $ | 544.1 | $ | (274.2) | (50%) | $ | 937.9 | $ | 1,276.5 | $ | (338.6) | (27%) |
Adjusted operating cash flow(b) | $ | 190.5 | $ | 549.6 | $ | (359.1) | (65%) | $ | 953.9 | $ | 1,385.1 | $ | (431.2) | (31%) |
Capital expenditures(d) | $ | 231.0 | $ | 212.1 | $ | 18.9 | 9% | $ | 640.6 | $ | 617.8 | $ | 22.8 | 4% |
Free cash flow(b) | $ | 38.9 | $ | 332.0 | $ | (293.1) | (88%) | $ | 297.3 | $ | 658.7 | $ | (361.4) | (55%) |
Average realized gold price per ounce(b) | $ | 1,790 | $ | 1,908 | $ | (118) | (6%) | $ | 1,797 | $ | 1,736 | $ | 61 | 4% |
Consolidated production cost of sales per equivalent ounce(c) sold(b) | $ | 874 | $ | 741 | $ | 133 | 18% | $ | 820 | $ | 742 | $ | 78 | 11% |
Attributable(a) production cost of sales per equivalent ounce(c) sold(b) | $ | 870 | $ | 737 | $ | 133 | 18% | $ | 816 | $ | 738 | $ | 78 | 11% |
Attributable(a) production cost of sales per ounce sold on a by-product basis(b) | $ | 836 | $ | 707 | $ | 129 | 18% | $ | 787 | $ | 717 | $ | 70 | 10% |
Attributable(a) all-in sustaining cost per ounce sold on a by-product basis(b) | $ | 1,205 | $ | 934 | $ | 271 | 29% | $ | 1,062 | $ | 962 | $ | 100 | 10% |
Attributable(a) all-in sustaining cost per equivalent ounce(c) sold(b) | $ | 1,225 | $ | 958 | $ | 267 | 28% | $ | 1,084 | $ | 978 | $ | 106 | 11% |
Attributable(a) all-in cost per ounce sold on a by-product basis(b) | $ | 1,543 | $ | 1,226 | $ | 317 | 26% | $ | 1,388 | $ | 1,226 | $ | 162 | 13% |
Attributable(a) all-in cost per equivalent ounce(c) sold(b) | $ | 1,552 | $ | 1,243 | $ | 309 | 25% | $ | 1,400 | $ | 1,237 | $ | 163 | 13% |
- "Total" includes 100% of Chirano production. "Attributable" includes Kinross' share of Chirano (90%) production and costs, and Manh Choh (70%) costs.
- The definition and reconciliation of these non-GAAP financial measures is included in Section 11.
- "Gold equivalent ounces" include silver ounces produced and sold converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period. The ratio for the third quarter of 2021 was 73.45:1 (third quarter of 2020 - 78.68:1). The ratio for the first nine months of 2021 was 69.90:1 (first nine months of 2020 - 90.15:1).
- "Capital expenditures" is as reported as "Additions to property, plant and equipment" on the interim condensed consolidated statement of cash flows.
- "nm" means not meaningful.
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KINROSS GOLD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three and nine months ended September 30, 2021
Consolidated Financial Performance
Third quarter 2021 vs. Third quarter 2020
Kinross' attributable production decreased by 20% compared to the third quarter of 2020, primarily due to lower production at Tasiast due to the suspension of milling operations as a result of the mill fire in June 2021, at Round Mountain primarily due to fewer ounces recovered from the heap leach pads and lower grades, and at Chirano and Kupol due to a decrease in grades. These decreases were partially offset by higher production at Bald Mountain largely due to the timing of ounces recovered from the heap leach pads.
Metal sales decreased by 24% compared to the third quarter of 2020 due to decreases in gold equivalent ounces sold and the average realized gold price. Total gold equivalent ounces sold decreased to 481,959 ounces in the third quarter of 2021 compared to 593,218 ounces in the third quarter of 2020, primarily due to the decrease in production as described above. The average realized gold price decreased to $1,790 per ounce in the third quarter of 2021 from $1,908 per ounce in the same period in 2020.
Production cost of sales in the third quarter of 2021 decreased by 4% compared to the third quarter of 2020, due to decreases in gold equivalent ounces sold at Tasiast and Chirano, partially offset by an increase in gold equivalent ounces sold and higher operating waste mined at Bald Mountain, higher operating waste mined and increases in production taxes at Round Mountain and an increase in mining costs at Kupol.
Attributable production cost of sales per equivalent ounce sold and per ounce sold on a by-product basis both increased by 18% in the third quarter of 2021 compared to the same period in 2020, primarily due to the decrease in ounces sold, as described above.
In the third quarter of 2021, depreciation, depletion and amortization increased by 2% compared to the same period in 2020, due to increases in the depreciable asset bases at Fort Knox, Round Mountain, Bald Mountain and Tasiast, partially offset by the decrease in attributable gold equivalent ounces sold.
Operating earnings decreased to $72.9 million in the third quarter of 2021 from $393.4 million in the same period in 2020. This decrease was primarily due to the decrease in metal sales, largely resulting from the temporary suspension of milling operations at Tasiast.
In the third quarter of 2021, the Company recorded a tax expense of $104.7 million, compared to $121.8 million in the third quarter of 2020. The $104.7 million tax expense recognized in the third quarter of 2021 included $14.8 million of deferred tax expense, compared to a deferred tax expense of $42.7 million in the third quarter of 2020, resulting from the net foreign currency translation of tax deductions related to the Company's operations in Brazil and Russia. Income tax expense decreased in the third quarter of 2021 compared to the third quarter of 2020, due to differences in the level of income in the Company's operating jurisdictions. The decrease in income tax expense was partially offset by additional tax expenses of $49.8 million in the third quarter of 2021 in respect of the settlement of tax amounts relating to prior years. Kinross' combined federal and provincial statutory tax rate for the third quarters of both 2021 and 2020 was 26.5%.
Net losses attributable to common shareholders in the third quarter of 2021 were $44.9 million, or $0.04 per share, compared to net earnings attributable to common shareholders of $240.7 million, or $0.19 per share, in the same period in 2020. The decrease was primarily a result of the decrease in operating earnings as described above.
Adjusted net earnings attributable to common shareholders in the third quarter of 2021 were $90.2 million, or $0.07 per share, compared to adjusted net earnings attributable to common shareholders of $310.2 million, or $0.25 per share, for the same period in 2020. The decrease in adjusted net earnings was primarily due to the decrease in ounces sold and the decrease in metal sales.
Net cash flow provided from operating activities decreased to $269.9 million in the third quarter of 2021 from $544.1 million in the third quarter of 2020, primarily due to the decrease in operating earnings, partially offset by favourable working capital movements.
In the third quarter of 2021, adjusted operating cash flow decreased to $190.5 million from $549.6 million in the same period of 2020, primarily due to the decrease in metal sales.
Capital expenditures increased to $231.0 million compared to $212.1 million in the third quarter of 2020, primarily due to increased expenditures for development activities at La Coipa, the feasibility study at Lobo-Marte and the pre-feasibility study at Udinsk, and an increase in capital stripping at Tasiast. These increases were partially offset by reduced capital stripping at Bald Mountain and Round Mountain.
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KINROSS GOLD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three and nine months ended September 30, 2021
Free cash flow decreased to $38.9 million in the third quarter of 2021, compared with $332.0 million in the same period of 2020, largely due to the decrease in net cash flow provided from operating activities, as described above.
In the third quarter of 2021, attributable all-in sustaining cost per equivalent ounce sold and per ounce sold on a by-product basis increased by 28% and 29%, respectively, compared to the same period in 2020, primarily due to the decrease in ounces sold and an increase in sustaining capital expenditures. In the third quarter of 2021, attributable all-in cost per equivalent ounce sold and per ounce sold on a by-product basis increased by 25% and 26%, respectively, compared to the same period in 2020, due to the decrease in ounces sold and increases in sustaining capital expenditures and non-sustaining exploration expenses.
First nine months of 2021 vs. First nine months of 2020
Kinross' attributable production in the first nine months of 2021 decreased by 9% compared to the same period in 2020. Lower production levels were seen at Tasiast due to the suspension of milling operations as a result of the mill fire in June 2021, with lower mill grades prior to the incident also contributing to the reduction, at Round Mountain due to lower mill grades and the timing of ounces recovered from the heap leach pads, and at Kupol due to lower grades. These reductions were partially offset by an increase in ounces recovered from the heap leach pads at Fort Knox and higher production at Paracatu due to higher mill throughput and recoveries.
Metal sales decreased by 6% in the first nine months of 2021, compared to the same period in 2020, due to a decrease in gold equivalent ounces sold, partially offset by an increase in the average realized gold price. Total gold equivalent ounces sold in the first nine months of 2021 decreased to 1,586,028 ounces from 1,738,379 ounces in the same period in 2020, primarily due to the decrease in production as described above. The average realized gold price increased to $1,797 per ounce in the first nine months of 2021 from $1,736 per ounce in the same period in 2020.
Production cost of sales in the first nine months of 2021 was comparable to the same period in 2020. Production cost of sales in the first nine months of 2021 increased at Round Mountain primarily due to higher operating waste mined and increases in royalties and production taxes, and at Bald Mountain and Paracatu due to increases in gold equivalent ounces sold and higher operating waste mined. These increases were largely offset by decreases in production cost of sales at Tasiast due to decreases in gold equivalent ounces sold, operating waste mined and fuel costs, and at Fort Knox as a result of a higher proportion of lower cost ounces produced from its Barnes Creek heap leach pad.
Attributable production cost of sales per equivalent ounce sold and per ounce sold on a by-product basis increased by 11% and 10%, respectively, in the first nine months of 2021, compared to the same period in 2020, due to the decrease in ounces sold, as described above.
In the first nine months of 2021, depreciation, depletion and amortization increased by 5%, compared to the same period in 2020, mainly due to increases in the depreciable asset bases at Bald Mountain and Round Mountain. These increases were partially offset by decreases at Kupol largely due to a decrease in the depreciable asset base related to the completion of mining activities at Dvoinoye and at Tasiast due to the decrease in gold equivalent ounces sold.
At June 30, 2020, the Company recorded an impairment reversal of $48.3 million entirely related to property, plant and equipment at Lobo-Marte, due to the increase in mineral reserves. No impairment charges or reversals were recorded in the first nine months of 2021.
In the first nine months of 2021, operating earnings were $509.1 million compared to $907.1 million in the same period in 2020. The decrease was largely related to the temporary suspension of milling operations at Tasiast, as well as to an increase in other operating expenses due to the stabilization of Round Mountain's north wall, and the impairment reversal recorded in the first nine months of 2020.
In the first nine months of 2021, the Company recorded an income tax expense of $224.9 million compared to $269.3 million in the same period in 2020. The $224.9 million income tax expense recognized in the first nine months of 2021 included $7.4 million of deferred tax expense, compared to a deferred tax expense of $96.6 million in the first nine months of 2020, resulting from the net foreign currency translation of tax deductions related to the Company's operations in Brazil and Russia. Income tax expense decreased in the first nine months of 2021 compared to the first nine months of 2020, due to differences in the level of income in the Company's operating jurisdictions. The decrease in income tax expense was partially offset by additional tax expenses of $49.8 million in the first nine months of 2021 in respect of the settlement of tax amounts relating to prior years. Kinross' combined federal and provincial statutory tax rate for the first nine months of both 2021 and 2020 was 26.5%.
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KINROSS GOLD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three and nine months ended September 30, 2021
Net earnings attributable to common shareholders in the first nine months of 2021 were $223.9 million, or $0.18 per share, compared to $559.1 million, or $0.44 per share, in the first nine months of 2020. The decrease is a result of the decrease in operating earnings as described above, partially offset by the decrease in income tax expense.
Adjusted net earnings attributable to common shareholders were $439.5 million, or $0.35 per share, for the first nine months of 2021 compared to $631.7 million, or $0.50 per share, for the same period in 2020. The decrease in adjusted net earnings was primarily due to the decrease in metal sales.
In the first nine months of 2021, net cash flow provided from operating activities decreased to $937.9 million from $1,276.5 million during the same period in 2020, mainly due to the decrease in operating earnings and higher taxes paid, partially offset by favourable working capital movements.
Adjusted operating cash flow in the first nine months of 2021 decreased to $953.9 million from $1,385.1 million in the same period in 2020, primarily due to the decrease in metal sales.
Capital expenditures increased to $640.6 million compared to $617.8 million in the first nine months of 2020, primarily due the increased expenditures for development activities at La Coipa, the feasibility study at Lobo-Marte and the pre-feasibility study at Udinsk, and an increase in capital stripping at Tasiast. These increases were partially offset by reduced capital stripping at Bald Mountain, Round Mountain and Fort Knox.
Free cash flow decreased to $297.3 million in the first nine months of 2021, compared with $658.7 million in the same period of 2020, largely due to the decrease in net cash flow provided from operating activities, as described above.
Attributable all-in sustaining cost per equivalent ounce sold and per ounce sold on a by-product basis in the first nine months of 2021 increased by 11% and 10%, respectively, compared to the same period in 2020, primarily due to the decrease in gold ounces sold. Attributable all-in cost per equivalent ounce sold and per ounce sold on a by-product basis both increased by 13%, compared to the first nine months in 2020, due to the decrease in ounces sold and increases in non-sustaining exploration expenses and capital expenditures.
2. IMPACT OF KEY ECONOMIC TRENDS AND THE COVID-19 PANDEMIC
Kinross' 2020 annual MD&A contains a discussion of key economic trends that affect the Company and its financial statements. Please refer to the MD&A for the year ended December 31, 2020, which is available on the Company's website www.kinross.comand on www.sedar.comor is available upon request from the Company. Included in this MD&A is an update reflecting significant changes since the preparation of the 2020 annual MD&A.
COVID-19 Pandemic
Kinross' ongoing response to the COVID-19 pandemic continued to maintain the safety of its global workforce and host communities while mitigating operational impacts to our global portfolio. However, the pandemic continued to affect overall performance, productivity rates and costs. Kinross is seeing increased potential to return to pre-pandemic operating environments in most of its jurisdictions, in line with public health guidelines and as a result of lower COVID-19 rates.
Price of Gold
The price of gold is the largest single factor in determining profitability and cash flow from operations, therefore, the financial performance of the Company has been, and is expected to continue to be, closely linked to the price of gold. During the third quarter of 2021, the average price of gold was $1,790 per ounce, with gold trading between $1,723 and $1,829 per ounce based on the London PM Fix gold price. This compares to an average of $1,909 per ounce during the third quarter of 2020, with a low of $1,771 and a high of $2,067 per ounce. During the third quarter of 2021, Kinross realized an average price of $1,790 per ounce compared to $1,908 per ounce for the same period in 2020. During the third quarter of 2021, gold prices were under pressure from rising U.S. yields, a stronger U.S. dollar and reduced safe haven demand.
For the first nine months of 2021, the price of gold averaged $1,800 per ounce compared to $1,735 in the same period of 2020. In the first nine months of 2021, Kinross realized an average price of $1,797 per ounce compared to an average price realized of $1,736 per ounce in the first nine months of 2020.
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Kinross Gold Corporation published this content on 10 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 November 2021 22:56:06 UTC.
