KINROSS
Gold Corporation
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[PICTURE]
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2003
Third Quarter Report
2003 THIRD QUARTER HIGHLIGHTS
(ALL DOLLAR AMOUNTS, EXCEPT PER SHARE AND PER OUNCE AMOUNTS
EXPRESSED IN US$ MILLIONS)
Three Months Nine Months
ended ended
September 30 September 30
2003 2002 2003 2002
-------------------------------------------------------------------------------------------------
Revenue $ 155.3 $ 62.2 $ 434.1 $ 196.3
=================================================================================================
Net loss for the period $ (6.1) $ (5.8) $ (22.5) $ (18.0)
Increase in equity component
of convertible debentures (2.2) (1.3) (6.5) (5.5)
Gain on redemption
of convertible debentures 16.5 - 16.5 -
-------------------------------------------------------------------------------------------------
Net earnings (loss) attributable to shares $ 8.2 $ (7.1) $ (12.5) $ (23.5)
=================================================================================================
Weighted average number
of common shares outstanding 323.4 119.4 297.4 118.2
-------------------------------------------------------------------------------------------------
Basic earnings (loss) per share (1) $ 0.03 $ (0.06) $ (0.04) $ (0.20)
-------------------------------------------------------------------------------------------------
Cash flow provided from
operating activities $ 42.0 $ 17.5 $ 81.7 $ 48.5
Capital expenditures $ 27.4 $ 8.9 $ 52.3 $ 18.1
Gold equivalent production (ounces) 434,816 227,946 1,240,884 657,396
Average realized price per ounce
of gold sold (2) $ 363 $ 310 $ 351 $ 302
Average spot price per ounce $ 363 $ 313 $ 354 $ 302
Total cash costs per ounce (3) $ 225 $ 205 $ 225 $ 203
Total production costs per ounce $ 326 $ 319 $ 322 $ 308
1 Adjusted to give retroactive effect for the three for one share
consolidation which was completed on January 31, 2003
2 Average realized price per ounce of gold sold is a non-GAAP measure, for
further information on this non-GAAP measure, please refer to the
disclosure under "Revenues - Gold and Silver Sales".
3 Total cash costs are non-GAAP measures. For further please refer to
information on this non-GAAP measure, the disclosure under the heading
"Costs and Expenses - Operations Summary".
--------------------------------------------------------------------------------
CAUTIONARY STATEMENT:
This document includes certain "forward-looking statements" within the
meaning of section 21E of the United States Securities Exchange Act of 1934, as
amended. All statements, other than statements of historical fact, included
herein, including without limitation, statements regarding potential
mineralization and reserves, exploration results and future plans and objectives
of Kinross Gold Corporation ("Kinross"), are forward-looking statements that
involve various risks and uncertainties.There can be no assurance that such
statements will prove to be accurate, and actual results and future events could
differ materially from those anticipated in such statements. Important factors
that could cause actual results to differ materially from Kinross' expectations
are disclosed under the heading "Risk Factors" and elsewhere in Kinross'
documents filed from time to time with the Toronto Stock Exchange, the United
States Securities and Exchange Commission and other regulatory authorities.
KINROSS Gold Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL AND OPERATING RESULTS
THIRD QUARTER CONSOLIDATED RESULTS
Kinross' attributable gold equivalent production was 434,816 ounces in the
third quarter of 2003, an increase of 91% over the 227,946 ounces produced in
the same period of 2002 as a result of the business combination with TVX and
Echo Bay effective January 31, 2003. Average total cash costs per attributable
gold equivalent ounce were $225 in the third quarter of 2003, compared to $205
in the third quarter of 2002. Cash flow provided from operating activities in
the third quarter of 2003 was $42.0 million, compared to $17.5 million achieved
during the same period in 2002. Cash flow provided from operating activities was
positively affected by higher gold equivalent production and by higher realized
prices on gold sales.
Net earnings attributable to common shares was $8.2 million resulting in
third quarter 2003 earnings per share of $0.03 versus a net loss attributable to
common shares of $7.1 million, or $0.06 per share, for the same 2002 period.The
net loss for the third quarter of 2003, before accounting for the redemption and
the increase in the equity component of the convertible debentures, was $6.1
million.This loss can be attributed to the $1.3 million of costs associated with
TVX's investment in TVX Hellas and the $4.6 million of severance associated with
the suspension of operations at the Lupin mine.
NINE MONTH CONSOLIDATED RESULTS
Gold equivalent production of 1,240,884 ounces at total cash costs of $225
per ounce, combined with changes in working capital, resulted in cash flow
provided from operating activities of $81.7 million during the first nine months
of 2003. This compares to gold equivalent production of 657,396 ounces at total
cash costs of $203 per ounce, which resulted in cash flow provided from
operating activities of $48.5 million, achieved during the first nine months of
2002. The Company recorded a net loss attributable to common shares of $12.5
million, or $0.04 per share, for the first nine months of 2003, compared to a
net loss attributable to common shares of $23.5 million, or $0.20 per share, in
2002.
--------------------------------------------------------------------------------
All results are expressed in United States dollars unless otherwise
stated.All per share information has been adjusted to give retroactive effect
for the three for one consolidation of the common shares,which was completed on
January 31,2003. Accordingly, loss per share for the nine months ended September
30, 2002 has been adjusted to give retroactive impact of the share
consolidation.The combination with TVX Gold Inc. ("TVX") and Echo Bay Mines Ltd.
("Echo Bay") was accounted for as a purchase with an effective date of January
31, 2003. Accordingly, the financial statements and gold equivalent production
statistics reflect operating results for the acquired properties for the months
of February to September only.
2003 Third Quarter Report 1
GOLD EQUIVALENT PRODUCTION
AND COST SUMMARY
Three months Nine months
ended ended
September 30 September 30
2003 2002 2003 2002
----------------------------------------------------------------------------------------------------------
FORT ▇▇▇▇
Tonnes milled/crushed (000's) (1) 3,653.3 3,663.1 10,180.1 10,445.8
Grade (grams per tonne) 1.00 1.13 1.07 1.04
Recovery 84% 85% 83% 85%
Gold equivalent production to dore (2) 98,518 113,449 291,157 296,162
Per ounce: Total cash costs $ 249 $ 219 $ 250 $ 241
Depreciation, depletion and amortization 87 147 98 123
Site restoration cost accruals 5 3 5 4
----------------------------------------------------------------------------------------------------------
Total production costs $ 341 $ 369 $ 353 $ 368
==========================================================================================================
ROUND MOUNTAIN (5) (8)
Tonnes milled/crushed (000's) (1) 3,972.5 - 14,723.6 -
Grade (grams per tonne) 0.51 - 0.62 -
Recovery 66% - 66% -
Gold equivalent production to dore (2) 97,468 - 277,838 -
Per ounce: Total cash costs $ 209 $ - $ 188 $ -
Depreciation, depletion and amortization 97 - 90 -
Site restoration cost accruals 5 - 5 -
----------------------------------------------------------------------------------------------------------
Total production costs $ 311 $ - $ 283 $ -
==========================================================================================================
PORCUPINE (3)
Tonnes milled/crushed (000's) (1) 1,063.8 1,068.4 3,112.0 1311.9
Grade (grams per tonne) 3.70 2.87 3.65 4.80
Recovery 93% 95% 93% 90%
Gold equivalent production to dore (2) 57,779 44,344 165,323 135,887
Per ounce: Total cash costs $ 204 $ 245 $ 215 $ 190
Depreciation, depletion and amortization 122 98 103 91
Site restoration cost accruals 7 7 7 7
----------------------------------------------------------------------------------------------------------
Total production costs $ 333 $ 350 $ 325 $ 288
==========================================================================================================
KUBAKA (4)
Tonnes milled/crushed (000's) (1) 227.8 205.7 661.8 636.0
Grade (grams per tonne) 6.14 15.98 6.47 15.73
Recovery 96% 98% 97% 98%
Gold equivalent production to dore (2) 43,144 56,806 120,770 173,847
Per ounce: Total cash costs $ 206 $ 126 $ 195 $ 135
Depreciation, depletion and amortization 114 93 109 92
Site restoration cost accruals - 4 2 3
----------------------------------------------------------------------------------------------------------
Total production costs $ 320 $ 223 $ 306 $ 230
==========================================================================================================
BRASILIA (6) (8)
Tonnes milled/crushed (000's) (1) 4,654.6 - 12,251.5 -
Grade (grams per tonne) 0.43 - 0.40 -
Recovery 75% - 77% -
Gold equivalent production to dore (2) 23,577 - 66,242 -
Per ounce: Total cash costs $ 214 $ - $ 189 $ -
Depreciation, depletion and amortization 64 - 60 -
Site restoration cost accruals 5 - 5 -
----------------------------------------------------------------------------------------------------------
Total production costs $ 283 $ - $ 254 $ -
==========================================================================================================
2 KINROSS Gold Corporation
Three months Nine months
ended ended
September 30 September 30
2003 2002 2003 2002
----------------------------------------------------------------------------------------------------------
LA COIPA (5) (8)
Tonnes milled/crushed (000's) (1) 1,626.0 - 4,212.0 -
Grade (grams per tonne) 1.15 - 1.00 -
Recovery 83% - 84% -
Gold equivalent production to dore (2) 42,890 - 99,667 -
Per ounce: Total cash costs $ 235 $ - $ 256 $ -
Depreciation, depletion and amortization 39 - 46 -
Site restoration cost accruals 3 - 3 -
----------------------------------------------------------------------------------------------------------
Total production costs $ 277 $ - $ 305 $ -
==========================================================================================================
CRIXAS (5) (8)
Tonnes milled/crushed (000's) (1) 190.9 - 502.6 -
Grade (grams per tonne) 8.27 - 8.30 -
Recovery 96% - 96% -
Gold equivalent production to dore (2) 24,216 - 63,923 -
Per ounce: Total cash costs $ 105 $ - $ 103 $ -
Depreciation, depletion and amortization 103 - 111 -
Site restoration cost accruals 1 - 1 -
----------------------------------------------------------------------------------------------------------
Total production costs $ 209 $ - $ 215 $ -
==========================================================================================================
▇▇▇▇▇▇▇▇▇▇▇ (7) (8)
Tonnes milled/crushed (000's) (1) 339.4 - 873.2 -
Grade (grams per tonne) 5.40 - 5.40 -
Recovery 95% - 96% -
Gold equivalent production to dore (2) 18,593 - 46,157 -
Per ounce: Total cash costs $ 265 $ - $ 257 $ -
Depreciation, depletion and amortization 124 - 123 -
Site restoration cost accruals 1 - 1 -
----------------------------------------------------------------------------------------------------------
Total production costs $ 390 $ - $ 381 $ -
==========================================================================================================
NEW BRITANNIA (5) (8)
Tonnes milled/crushed (000's) (1) 141.0 - 413.7 -
Grade (grams per tonne) 3.62 - 4.00 -
Recovery 95% - 95% -
Gold equivalent production to dore (2) 8,235 - 25,060 -
Per ounce: Total cash costs $ 325 $ - $ 306 $ -
Depreciation, depletion and amortization 137 - 136 -
Site restoration cost accruals 1 - 1 -
----------------------------------------------------------------------------------------------------------
Total production costs $ 463 $ - $ 443 $ -
==========================================================================================================
LUPIN (8)
Tonnes milled/crushed (000's) (1) 50.6 - 178.1 -
Grade (grams per tonne) 7.20 - 6.69 -
Recovery 93% - 93% -
Gold equivalent production to dore (2) 11,690 - 56,008 -
Per ounce: Total cash costs $ 395 $ - $ 407 $ -
Depreciation, depletion and amortization 61 - 59 -
Site restoration cost accruals 15 - 15 -
----------------------------------------------------------------------------------------------------------
Total production costs $ 471 $ - $ 481 $ -
==========================================================================================================
(1) Tonnes milled/crushed represents 100% of mine production (5) 50% ownership interest
(2) Gold equivalent to dore represents the Company's share (6) 49% ownership interest
(3) 100% of Hoyle Pond mine to June 30, 2002, 49% of Porcupine (7) 32% ownership interest
JointVenture thereafter. (8) Production and cost data is for
(4) 54.7% ownership interest to February 28, 2003, 100% thereafter eight months from February to
September, 2003
2003 Third Quarter Report 3
GOLD EQUIVALENT PRODUCTION
OUNCES
Three months Nine months
ended ended
September 30 September 30
2003 2002 2003 2002
--------------------------------------------------------------------------------
PRIMARY OPERATIONS:
Fort ▇▇▇▇ 98,518 113,449 291,157 296,162
Round Mountain (1) (4) 97,468 - 277,838 -
Porcupine (2) 57,779 44,344 165,323 135,887
Kubaka (3) 43,144 56,806 120,770 173,847
Brasilia (1) (5) 23,577 - 66,242 -
La Coipa (1) (4) 42,890 - 99,667 -
Crixas (1) (4) 24,216 - 63,923 -
▇▇▇▇▇▇▇▇▇▇▇ (1) (6) 18,593 - 46,157 -
New Britannia (1) (4) 8,235 - 25,060 -
Lupin (1) 11,690 - 56,008 -
--------------------------------------------------------------------------------
426,110 214,599 1,212,145 605,896
--------------------------------------------------------------------------------
OTHER OPERATIONS:
Blanket 8,706 11,130 27,009 31,783
▇▇▇▇▇▇▇ (4) - - - 8,902
▇▇▇▇▇▇-Rawhide (7) - 2,217 1,730 8,957
Andacollo (7) - - - 1,858
--------------------------------------------------------------------------------
8,706 13,347 28,739 51,500
--------------------------------------------------------------------------------
Total gold equivalent ounces 434,816 227,946 1,240,884 657,396
================================================================================
CONSOLIDATED PRODUCTION COSTS
($ PER OUNCE OF GOLD EQUIVALENT)
Cash operating costs $ 213 $ 198 $ 214 $ 197
Royalties 12 7 11 6
--------------------------------------------------------------------------------
Total cash costs 225 205 225 203
Reclamation 6 4 5 4
Depreciation and amortization 95 110 92 101
--------------------------------------------------------------------------------
Total production costs $ 326 $ 319 $ 322 $ 308
================================================================================
(1) Production data is for the eight months from February to September, 2003.
(2) 2003 production reflects the Company's 49% ownership interest in the
Porcupine Joint Venture. 2002 production reflects the Company's 100%
ownership interest in the Hoyle Pond mine to June 30, 2002 and the 49%
interest in the Porcupine Joint Venture thereafter.
(3) Represents the Company's 54.7% ownership interest to February 28, 2003,
100% thereafter.
(4) Represents the Company's 50% ownership interest.
(5) Represents the Company's 49% ownership interest.
(6) Represents the Company's 32% ownership interest.
(7) Includes proportionate share of ▇▇▇▇▇▇-Rawhide and Andacollo production
attributable to the Pacific Rim (formerly Dayton) ownership interest.
4 KINROSS Gold Corporation
CASH OPERATING COSTS
($ PER OUNCE OF GOLD EQUIVALENT)
Three months Nine months
ended ended
September 30 September 30
2003 2002 2003 2002
--------------------------------------------------------------------------------
PRIMARY OPERATIONS:
Fort ▇▇▇▇ $ 246 $ 217 $ 247 $ 240
Round Mountain (1) 169 - 157 -
Porcupine 204 244 215 189
Kubaka 184 105 173 114
Brasilia (1) 210 - 184 -
La Coipa (1) 235 - 256 -
Crixas (1) 101 - 99 -
▇▇▇▇▇▇▇▇▇▇▇ (1) 266 - 257 -
New Britannia (1) 325 - 306 -
Lupin (1) 395 - 407 -
--------------------------------------------------------------------------------
211 193 213 192
--------------------------------------------------------------------------------
OTHER OPERATIONS:
Blanket 281 295 270 268
▇▇▇▇▇▇▇ - - - 165
▇▇▇▇▇▇-Rawhide - 250 218 241
Andacollo - - - 287
--------------------------------------------------------------------------------
281 287 267 247
--------------------------------------------------------------------------------
$ 213 $ 198 $ 214 $ 197
================================================================================
TOTAL CASH COSTS
($ PER OUNCE OF GOLD EQUIVALENT)
PRIMARY OPERATIONS:
Fort ▇▇▇▇ $ 249 $ 219 $ 250 $ 241
Round Mountain (1) 209 - 188 -
Porcupine 204 245 215 190
Kubaka 206 126 195 135
Brasilia (1) 214 - 189 -
La Coipa (1) 235 - 256 -
Crixas (1) 105 - 103 -
▇▇▇▇▇▇▇▇▇▇▇ (1) 265 - 257 -
New Britannia (1) 325 - 306 -
Lupin (1) 395 - 407 -
--------------------------------------------------------------------------------
224 199 224 199
--------------------------------------------------------------------------------
OTHER OPERATIONS:
Blanket 288 298 278 272
▇▇▇▇▇▇▇ - - - 182
▇▇▇▇▇▇-Rawhide - 256 221 246
Andacollo - - - 295
--------------------------------------------------------------------------------
288 291 275 253
--------------------------------------------------------------------------------
$ 225 $ 205 $ 225 $ 203
================================================================================
(1) Cost data is for eight months from February to September, 2003.
2003 Third Quarter Report 5
REVENUES
GOLD AND SILVER SALES
Kinross' primary source of revenue is from the sale of its gold production.
Kinross sold 405,561 ounces of gold in the third quarter of 2003, compared to
181,585 ounces in the third quarter of 2002. Revenue from gold and silver sales
was $153.8 million in the third quarter of 2003 compared to $56.5 million in
2002.The increase in 2003 revenue from gold and silver sales was a result of
higher gold sales due to the completion of the combination with TVX and Echo Bay
on January 31, 2003, and from higher realized gold prices. In the third quarter
of 2003, Kinross realized $363 per ounce of gold, compared to $310 in 2002.The
average London market spot price for gold in the third quarter of 2003 was $363
per ounce compared to $313 in 2002.
The Company sold 1,176,573 ounces of gold during the first nine months of
2003, compared with 607,705 in 2002. Revenue from gold and silver sales was
$428.6 million in the first nine months of 2003, compared with $184.5 million in
2002. Revenue from gold and silver sales in the first nine months of 2003 was
132% higher than the revenue in 2002 due to the increased production levels and
higher realized prices. In the first nine months of 2003, the Company realized
$351 per ounce of gold, compared with $302 in 2002.The average spot price for
gold was $354 per ounce in the first nine months of 2003 compared with $302 in
2002.
Three months Nine months
ended ended
September 30 September 30
2003 2002 2003 2002
------------------------------------------------------------------------------------------------------
Attributable gold equivalent production - ounces 434,816 227,946 1,240,884 657,396
Gold sales - ounces (excluding equity accounted ounces) 405,561 181,585 1,176,573 607,705
Gold sales revenue (millions) $ 146.8 $ 55.1 $ 410.9 $ 179.8
Gold deferred revenue realized (millions) 0.6 1.3 1.7 3.8
------------------------------------------------------------------------------------------------------
Total gold revenue realized (millions) $ 147.4 $ 56.4 $ 412.6 $ 183.6
======================================================================================================
Average sales price per ounce of gold $ 362 $ 303 $ 349 $ 296
Deferred revenue realized per ounce of gold 1 7 2 6
------------------------------------------------------------------------------------------------------
Average realized price per ounce of gold sold $ 363 $ 310 $ 351 $ 302
======================================================================================================
Average spot gold price per ounce $ 363 $ 313 $ 354 $ 302
Silver sales revenue (millions) $ 6.4 $ 0.1 $ 16.0 $ 0.9
Included in gold equivalent production is silver production converted to
gold production using a ratio of the average spot market prices.The Company
produced 1.5 million ounces of silver (20,112 ounces of gold equivalent) and 3.5
million ounces of silver (47,040 ounces of gold equivalent) in the third quarter
and first nine months of 2003, respectively.Third quarter silver to gold ratios
were 72.8:1 in 2003 and 66.1:1 in 2002.
6 KINROSS Gold Corporation
The above non-GAAP measure of average realized price per ounce of gold sold
has been calculated on a consistent basis in each period.The calculation of
average realized price per ounce of gold sold might not be comparable to
similarly titled measures of other companies. Average realized price per ounce
of gold sold is used by management to assess profitability and cash flow of
individual operations as well as to compare with other precious metal producers.
INTEREST AND OTHER INCOME
Kinross invests its surplus cash in high quality, interest-bearing cash
equivalents. Interest and other income totaled $2.4 million in the third quarter
and $5.2 million in the first nine months of 2003 compared to $6.0 million in
the third quarter and $13.7 million in the first nine months of 2002.
Interest and other income in the third quarter of 2003 was comprised of
interest of $1.1 million, $0.2 million of joint venture management fees and $1.1
million of other items.
MARK-TO-MARKET GAIN (LOSS) ON WRITTEN CALL OPTIONS
Premiums received at the inception of written call options are recorded as
a liability. Changes in the fair market value of the liability are recognized in
earnings each quarter.The change in fair market value of the written call
options resulted in a mark-to-market loss of $0.9 million in the third quarter
and a gain of $0.3 million in the first nine months of 2003 compared to a loss
of $0.3 million in the third quarter of 2002 and $1.9 million in the first nine
months of 2002.The Company plans to reduce its written call position in 2003 by
delivering gold production into any contracts that are exercised in 2003.
Details on the outstanding written call options at September 30, 2003 are
discussed in the section entitled "Commodity Price Risks".
COSTS AND EXPENSES
OPERATIONS - SUMMARY
Gold equivalent production of 426,110 ounces in the third quarter of 2003
(excluding equity accounted ounces increased by 98% compared to third quarter
2002 production, while mine operating costs) increased by 109%. Consolidated
operating costs were $107.1 million in the third quarter and $301.4 million in
the first nine months of 2003 compared to $39.0 million in the third quarter and
$126.9 million in the first nine months of 2002.
Included in operating costs for the third quarter of 2003 were $1.3 million
of expenditures associated with TVX's investment in TVX Hellas ($3.7 million for
the first nine months) and $4.6 million of severance associated with the
suspension of operations at the Lupin mine.
Kinross applies a conservative policy, which is to expense stripping costs
as incurred. Had Kinross deferred stripping costs in excess of mine averages, as
do a number of the North America senior gold producers, total cash costs per
equivalent ounce would have been $220 and $220 for the three and nine months
ended September 30, 2003, respectively.
2003 Third Quarter Report 7
The following table provides a reconciliation of operating costs per the
consolidated financial statements to operating costs for per ounce calculation
of total cash costs pursuant to gold industry guidelines.
Reconciliation of Total Cash Costs per Three months Nine months
Equivalent Ounce of Gold ended ended
to Consolidated Financial Statements September 30 September 30
(MILLIONS EXCEPT PRODUCTION IN OUNCES AND PER OUNCE AMOUNTS) 2003 2002 2003 2002
-------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 107.1 $ 39.0 $ 301.4 $ 126.9
Operating costs for attributable production 2.5 3.8 7.5 11.5
Site restoration cost accruals (2.4) (0.8) (6.1) (2.3)
Change in bullion inventory 1.8 5.9 (7.3) 1.1
Operating costs not related to gold production (11.2) (1.2) (15.8) (3.6)
-------------------------------------------------------------------------------------------------------------
Operating costs for per ounce calculation purposes $ 97.8 $ 46.7 $ 279.7 $ 133.6
=============================================================================================================
Gold equivalent production - ounces 434,816 227,964 1,240,884 657,396
Total cash costs per equivalent ounce of gold $ 225 $ 205 $ 225 $ 203
The above non-GAAP measure of total cash costs per ounce has been
calculated on a consistent basis in each period. For reasons of comparability,
total cash costs do not include certain items such as property write-downs,
which do not occur in all periods but are included under GAAP in the
determination of net earnings or loss. Total cash costs per ounce are calculated
in accordance with gold industry guidelines. Total cash costs per ounce may not
be comparable to similarly titled measures of other companies. Total cash costs
per ounce information is used by management to assess profitability and cash
flow of individual operations, as well as to compare with other precious metal
producers. Total cash costs per ounce of gold equivalent increased by 10% during
the third quarter of 2003 compared to the third quarter of 2002. Details of the
individual mine performances are discussed in the following sections.
The item total cash cost per ounce is furnished to provide additional
information and is a non-GAAP measure.This measure should not be considered in
isolation as a substitute for a measure of performance prepared in accordance
with generally accepted accounting principles and is not necessarily indicative
of operating profit or cost from operations as determined under generally
accepted accounting principles.There are no differences in computing operating
costs under U.S. GAAP.Therefore, total cash costs per ounce computed from
operating costs in accordance with U.S. GAAP are unchanged from the Canadian
GAAP amounts.
8 KINROSS Gold Corporation
OPERATIONS - INDIVIDUAL MINE DISCLOSURE
FORT ▇▇▇▇ (100% Ownership Interest) - USA
Production at the Fort ▇▇▇▇ operation during the third quarter of 2003 was
98,518 gold equivalent ounces, down from the 113,449 ounces produced during the
same period last year, and 6% less than plan, due to lower gold grades and mill
recoveries.The processing of slightly more refractory, sulphidic True North ore
adversely impacted gold recoveries during the quarter. It is anticipated that
the metallurgical properties of the True North ore will remain the same until
mining at the satellite deposit ceases in early 2005; therefore, in order to
optimize gold recoveries, efforts are underway to provide the mill with a more
uniform blend of True North and Fort ▇▇▇▇ open pit ores. Assisting in offsetting
the lower recoveries were initiatives undertaken in the first quarter to
increase mill capacity, which resulted in an 8% improvement in mill throughput
as compared to plan.
Over the first nine months of 2003, gold equivalent production was 291,157
ounces, slightly lower than the 296,162 ounces achieved during the first nine
months of 2002 as a result of the lower gold recoveries.
Third quarter total cash costs were $249 per gold equivalent ounce, a 14%
rise over the same period last year and 10% higher than budget. Total cash costs
per gold equivalent ounce for the nine-month period ending September 30, 2003
increased 4% to $250 compared to the same period last year. Total cash costs
were higher as a result of lower than plan gold production and higher than
planned consumable costs.
Kinross' expectation for the Fort ▇▇▇▇ mine is to produce approximately
116,000 ounces at total cash costs of $205 per ounce in the fourth quarter of
2003.
Reconciliation of the Fort ▇▇▇▇ Mine Three months Nine months
Total Cash Costs per Equivalent Ounce of Gold ended ended
to Consolidated Financial Statements September 30 September 30
------------------------------------------------------------------------------------------------------------
(MILLIONS EXCEPT PRODUCTION IN OUNCES AND PER OUNCE AMOUNTS) 2003 2002 2003 2002
Operating costs per financial statements $ 25.4 $ 20.8 $ 73.7 $ 72.8
Site restoration cost accruals (0.9) (0.3) (1.5) (0.9)
Change in bullion inventory - 4.3 0.6 (0.6)
------------------------------------------------------------------------------------------------------------
Operating costs for per ounce calculation purposes $ 24.5 $ 24.8 $ 72.8 $ 71.3
------------------------------------------------------------------------------------------------------------
Gold equivalent production - ounces 98,518 113,449 291,157 296,162
Total cash costs per equivalent ounce of gold $ 249 $ 219 $ 250 $ 241
Total cash costs are non-GAAP measures. For further information on this
non-GAAP measure, please refer to the disclosure under the heading "Costs and
Expenses - Operations Summary".
Capital expenditures at the Fort ▇▇▇▇ operations in the third quarter of
2003 were $7.8 million compared to $7.6 million in the same period last year.
Phase 5 mine development was $1.3 million with the remainder of capital directed
towards equipment rebuilds, the drilling of pit de-watering ▇▇▇▇▇ and
exploration.
During the quarter, exploration was conducted within the Fort ▇▇▇▇ pit, on
the Gil prospect and at ▇▇▇▇ ▇▇▇▇. Results from the in-pit work confirmed the
continuity of the mineralized zones beyond the current limit of the ultimate
pit. At Gil, 10 km east of the Fort ▇▇▇▇ mine site, an engineering scoping study
was initiated to evaluate the economic merits of the project.
2003 Third Quarter Report 9
ROUND MOUNTAIN (50% Ownership Interest) - USA
Kinross acquired its ownership interest in the Round Mountain mine, located
in ▇▇▇ County, Nevada, USA, upon completion of the combination with Echo Bay on
January 31, 2003. Round Mountain continues to perform well with Kinross' share
of third quarter gold equivalent production totaling 97,468 ounces and
eight-month production, ending September 30, 2003, totaling 277,838 ounces, 13%
better than plan. Gold equivalent production was positively impacted by higher
gold recoveries due to the installation of new carbon columns during the second
quarter and the implementation of side slope leaching of the historic dedicated
▇▇▇▇▇ pad.
Due to the failure of an electrical transformer, production activities have
focused on accelerating ore placement on the dedicated ▇▇▇▇▇ pads to offset
crushing and milling limitations. Higher-grade ore, which would have been milled
during the quarter, is presently being stockpiled. As a result of the
flexibility provided by having three separate processing streams, the lower mill
throughput did not adversely impact production for the quarter. It is
anticipated that the transformer repairs will be completed prior to the end of
the fourth quarter of 2003.
Total cash costs per gold equivalent ounce were $209 per ounce during the
third quarter and $188 per ounce for the eight month period ending September 30,
2003, a 4% and 9% improvement over plan, respectively, largely as a result of
the higher gold production.
Kinross' expectation for Round Mountain is to produce approximately 70,000
ounces to the Company's account at total cash costs of $229 per ounce in the
fourth quarter of 2003.
Reconciliation of the Round Mountain Mine Three months Eight months
Total Cash Costs per Equivalent Ounce of Gold ended ended
to Consolidated Financial Statements September 30 September 30
(MILLIONS EXCEPT PRODUCTION IN OUNCES AND PER OUNCE AMOUNTS) 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 19.9 $ - $ 54.6 $ -
Site restoration cost accruals (0.5) - (1.4) -
Change in bullion inventory 1.1 - (1.0) -
------------------------------------------------------------------------------------------------------------
Operating costs for per ounce calculation purposes $ 20.5 $ - $ 52.2 $ -
------------------------------------------------------------------------------------------------------------
Gold equivalent production - ounces 97,468 - 277,838 -
Total cash costs per equivalent ounce of gold $ 209 $ - $ 188 $ -
Total cash costs are non-GAAP measures. For further information on this
non-GAAP measure, please refer to the disclosure under the heading "Costs and
Expenses - Operations Summary".
Kinross' share of capital expenditures at the Round Mountain mine in the
third quarter of 2003 was $3.5 million. Pit dewatering and dedicated ▇▇▇▇▇ pad
construction accounted for the majority of the capital expenditures.
At the Gold Hill project, 8,945 feet of reverse circulation diamond
drilling was completed during the quarter in order to verify the resource block
models. It is anticipated that a feasibility study will be initiated in early
2004 to evaluate the economic merits of the project.
10 KINROSS Gold Corporation
PORCUPINE (49% Ownership Interest) - Canada
Kinross' share of third quarter gold production from the Porcupine Joint
Venture was 57,779 ounces, a 30% improvement over the 44,344 ounces produced
during the same period last ▇▇▇▇.▇▇▇▇▇ cash cost per ounce was $204, a marked
improvement over the $245 per ounce achieved during the third quarter
2002.Year-to-date gold production increased to 165,323 ounces at a total cash
cost of $215 per ounce as compared to the 135,887 ounces produced during the
first nine months of 2002. Kinross' share of nine-month comparable production
figures includes only 100% of Hoyle Pond mine production for the first six
months of 2002, whereas, 2003 production figures reflect Kinross' 49% ownership
share in the Porcupine Joint Venture formed on July 1, 2002.
Third quarter 2003 production was 4% greater than plan and total cash cost
were 5% lower than plan as a result of higher than plan mill throughput (+4%)
and gold recoveries (+2%).These improvements were achieved despite power outages
and associated power constraints, which resulted in 60 hours of downtime during
August.
Kinross' expectation for Porcupine is to produce approximately 55,000
ounces to the Company's account at total cash costs of $217 per ounce in the
fourth quarter of 2003.
Reconciliation of the Porcupine Joint Venture Three months Nine months
Total Cash Costs per Equivalent Ounce of Gold ended ended
to Consolidated Financial Statements September 30 September 30
(MILLIONS EXCEPT PRODUCTION IN OUNCES AND PER OUNCE AMOUNTS) 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 14.3 $ 11.0 $ 41.3 $ 27.9
Site restoration cost accruals (0.4) (0.3) (1.2) (0.9)
Change in bullion inventory (0.7) 0.2 (2.0) (0.8)
Operating costs not related to gold production (1.4) - (2.5) (0.4)
------------------------------------------------------------------------------------------------------------
Operating costs for per ounce calculation purposes $ 11.8 $ 10.9 $ 35.6 $ 25.8
------------------------------------------------------------------------------------------------------------
Gold equivalent production - ounces 57,779 44,344 165,313 5,887
Total cash costs per equivalent ounce of gold $ 204 $ 245 $ 215 $ 190
Total cash costs are non-GAAP measures. For further information on this
non-GAAP measure, please refer to the disclosure under the heading "Costs and
Expenses - Operations Summary".
Kinross' share of capital expenditures at the Porcupine Joint Venture in
the third quarter of 2003 was $2.5 million.This amount included expenditures on
the tailings dam lifts and the development of the Pamour project.
The Pamour open pit feasibility study is in the process of being finalized
and permitting work has commenced. Demolition of the old Pamour headframe and
associated infrastructure has been completed in preparation of the development
of the open pit operations.
An aggressive exploration program continued during the third quarter with
23,876 metres of exploration diamond drilling completed. In the Pamour area,
drilling of the north contact returned significant results including 1.82 grams
per tonne over 27.1 metres, 1.39 grams per tonne over 36.0 metres and 1.37 grams
per tonne over 21.3 metres. At the Hoyle Pond mine, diamond drilling continues
to expand the size of the newly discovered high grade "A"Vein. Underground
development has commenced to access the "A"Vein on the 740 level.
2003 Third Quarter Report 11
KUBAKA (98.1% Ownership Interest) - Russia
During the third quarter of 2003, Kinross' share of gold equivalent
production from the Kubaka mine was 43,144 ounces (98.1% ownership) at a total
cash cost of $206 per ounce, compared with the 56,806 ounces (54.7% ownership)
produced at a total cash cost of $126 per ounce achieved during the same three
month period in 2002. Comparable production was lower due to the completion of
mining activities at the Kubaka pit at the end of 2002 and the commencement of
processing of relatively lower grade ore stockpiles which was partially offset
by the increased ownership interest in 2003.The processing of stockpiled ore,
combined with underground mining activities, continued in the third quarter.
Nine-month 2003 production figures were similarly impacted by the closure
of the Kubaka open pit with Kinross' share of gold equivalent production
totaling 120,770 ounces (98.1% ownership) at a total cash cost of $195 per ounce
down from the 173,847 (54.7% ownership) ounces at a total cash cost of $135 per
ounce achieved during the first nine months of 2002.
Third quarter 2003 gold equivalent production was 28% less than plan due to
lower underground production partially offset by 5% higher than plan mill
throughput. Underground production is expected to return to plan during the
fourth quarter of 2003.
Kinross' expectation for Kubaka is to produce approximately 55,000 gold
equivalent ounces to the Company's account at total cash costs of $190 per ounce
in the fourth quarter of 2003.
Reconciliation of the Kubaka Mine Three months Nine months
Total Cash Costs per Equivalent Ounce of Gold ended ended
to Consolidated Financial Statements September 30 September 30
(MILLIONS EXCEPT PRODUCTION IN OUNCES AND PER OUNCE AMOUNTS) 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 8.9 $ 5.6 $ 23.7 $ 20.6
Site restoration cost accruals (0.1) (0.2) (0.4) (0.6)
Change in bullion inventory 0.3 1.4 0.6 2.7
Management fees - 0.4 - 0.8
------------------------------------------------------------------------------------------------------------
Operating costs for per ounce calculation purposes $ 9.1 $ 7.2 $ 23.9 $ 23.5
------------------------------------------------------------------------------------------------------------
Gold equivalent production - ounces 43,144 56,806 120,770 173,847
Total cash costs per equivalent ounce of gold $ 206 $ 126 $ 195 $ 135
Total cash costs are non-GAAP measures. For further information on this
non-GAAP measure, please refer to the disclosure under the heading "Costs and
Expenses - Operations Summary".
Kinross' share of third quarter 2003 capital expenditures at the Kubaka
mine was $0.1 million.
Underground development activities on the North High Wall, Centre Zone and
North Vein, which are extensions of the main vein system at the mined out Kubaka
mine, are continuing to progress slowly due to lower than plan equipment
availability, however, development rates had begun to improve during the last
half of September.The Kubaka underground veins will provide high-grade mill feed
to supplement the stockpile mill feed presently being processed.
12 KINROSS Gold Corporation
During the quarter, authorization to commence mining the Birkachan open pit
was received from the Ministry of Natural Resources. Planning for the
development of the test open pit is being finalized. Exploration drilling
commenced during the quarter to determine the potential for additional gold
mineralization along the flanks of the proposed pit. At the Tsokol vein,
preliminary underground mining plans were completed during the quarter and a
final mining proposal is being prepared.
BRASILIA (49% Ownership Interest) - Brazil
Kinross acquired its ownership interest in the Brasilia open pit mine,
located in the State of Minas Gerais, Brazil, upon completion of the combination
with TVX on January 31, 2003. During the three months and eight months ending
September 30, 2003, the Company's share of gold production was 23,577 ounces at
a total cash cost of $214 per ounce and 66,242 ounces at a total cash cost of
$189 per ounce, respectively. Harder than anticipated ore, which reduced mill
throughput, and the higher sulphide content of the ore processed, which lowered
recoveries, combined to negatively impact gold production as compared to plan.
The lower gold production in addition to higher electricity, fuel and
maintenance costs resulted in third quarter total cash costs per ounce being 24%
above plan.
The economics of the Calha Mill expansion prefeasibility study, completed
during the second quarter, were favourable and, as a result, work has begun on a
full feasibility study to be completed during the first quarter of 2004.The
study envisions the installation of a SAG mill to increase mill throughput by
approximately 50% to 30 million tonnes per annum.
Kinross' expectation for the Brasilia mine is to produce approximately
28,000 ounces to the Company's account at total cash costs of $169 per ounce in
the fourth quarter of 2003.
Reconciliation of the Brasilia Mine Three months Eight months
Total Cash Costs per Equivalent Ounce of Gold ended ended
to Consolidated Financial Statements September 30 September 30
(MILLIONS EXCEPT PRODUCTION IN OUNCES AND PER OUNCE AMOUNTS) 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 5.1 $ - $ 13.5 $ -
Site restoration cost accruals (0.1) - (0.3) -
Change in bullion inventory - - (0.7) -
------------------------------------------------------------------------------------------------------------
Operating costs for per ounce calculation purposes $ 5.0 $ - $ 12.5 $ -
------------------------------------------------------------------------------------------------------------
Gold equivalent production - ounces 23,577 - 66,242 -
Total cash costs per equivalent ounce of gold $ 214 $ - $ 189 $ -
Total cash costs are non-GAAP measures. For further information on this
non-GAAP measure, please refer to the disclosure under the heading "Costs and
Expenses - Operations Summary".
Kinross' share of capital expenditures at the Brasilia mine in the third
quarter of 2003 was $2.1 million. Capital expenditures in the quarter were
mainly related to additions to the mining fleet and work related to the tailings
dam.
2003 Third Quarter Report 13
LA COIPA (50% Ownership Interest) - Chile
Kinross acquired its ownership interest in the La Coipa mine, Chile, upon
completion of the combination with TVX on January 31, 2003. The Company's share
of gold equivalent production for the three months ending September 30, 2003 was
42,890 ounces at total cash costs of $235 per equivalent ounce, a significant
improvement over the 32,854 ounces, at a total cash cost of $291, produced
during the second quarter 2003. For the eight-month period ending September 30,
2003, gold equivalent production was 99,667 ounces at a total cash cost of $256
per ounce. Unlike a number of senior mining companies, it is Kinross' policy to
expense open pit stripping costs rather than defer these costs until a later
date. If stripping costs had been deferred, third quarter and eight-month total
cash costs per gold equivalent ounce would have been $204 and $221,
respectively.
Third quarter 2003 gold equivalent production was 9% above plan, as the
result of higher silver grades combined with better than anticipated gold and
silver recoveries. Better than plan silver grade and precious metal recoveries
were due to changes to the mining plan as mining activities focused on the
Brecha Norte pit while remediation work continued on the Coipa Norte pit.
Kinross' expectation for the La Coipa mine is to produce approximately
30,000 gold equivalent ounces to the Company's account at total cash costs of
$307 per ounce in the fourth quarter of 2003. It should be noted that the most
significant component of the difference with our joint venture partner in total
cash cost expectations for La Coipa is the fact that Kinross does not defer
stripping.
Reconciliation of the La Coipa Mine Three months Eight months
Total Cash Costs per Equivalent Ounce of Gold ended ended
to Consolidated Financial Statements September 30 September 30
(MILLIONS EXCEPT PRODUCTION IN OUNCES AND PER OUNCE AMOUNTS) 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 7.9 $ - $ 25.7 $ -
Site restoration cost accruals (0.1) - (0.2) -
Change in bullion inventory 2.3 - - -
------------------------------------------------------------------------------------------------------------
Operating costs for per ounce calculation purposes $ 10.1 $ - $ 25.5 $ -
------------------------------------------------------------------------------------------------------------
Gold equivalent production - ounces 42,890 - 99,667 -
Total cash costs per equivalent ounce of gold $ 235 $ - $ 256 $ -
Total cash costs are non-GAAP measures. For further information on this
non-GAAP measure, please refer to the disclosure under the heading "Costs and
Expenses - Operations Summary".
Kinross' share of capital expenditures at La Coipa during the third quarter
of 2003 was $0.4 million.
14 KINROSS Gold Corporation
CRIXAS (50% Ownership Interest) - Brazil
Kinross acquired its ownership interest in the Crixas mine, located in the
State of Goias, Brazil upon completion of the combination with TVX on January
31, 2003.The mine continues to perform well with the Company's share of gold
production during the third quarter 2003 totaling 24,216 ounces at a total cash
cost of $105 per ounce. For the eight months ending September 30, 2003, Kinross'
share of production was 63,923 ounces of gold at a total cash cost of $103 per
ounce.
Kinross' expectation for the Crixas mine is to produce approximately 22,000
ounces to the Company's account at total cash costs of $118 per ounce in the
fourth quarter of 2003.
Reconciliation of the Crixas Mine Three months Eight months
Total Cash Costs per Equivalent Ounce of Gold ended ended
to Consolidated Financial Statements September 30 September 30
(MILLIONS EXCEPT PRODUCTION IN OUNCES AND PER OUNCE AMOUNTS) 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 2.3 $ - $ 7.3 $ -
Site restoration cost accruals - - (0.1) -
Change in bullion inventory 0.3 - (0.7) -
------------------------------------------------------------------------------------------------------------
Operating costs for per ounce calculation purposes $ 2.6 $ - $ 6.5 $ -
------------------------------------------------------------------------------------------------------------
Gold equivalent production - ounces 24,216 - 63,923 -
Total cash costs per equivalent ounce of gold $ 105 $ - $ 103 $ -
Total cash costs are non-GAAP measures. For further information on this
non-GAAP measure, please refer to the disclosure under the heading "Costs and
Expenses - Operations Summary".
Kinross' share of capital expenditures at the Crixas mine in the third
quarter of 2003 was $0.8 million.
Exploration drilling for the quarter of 5,570 metres was completed around
the Crixas ▇▇▇▇.▇▇▇▇ on the Forquilha Sul ore zone, which overlies the principle
Mina III ore body, has confirmed continuity mineralization over a strike length
of approximately 200m and a down-plunge length of 300m. To date, eight diamond
drill holes, spaced approximately 50m both along strike and downdip, have
returned intercepts over widths of 3m to 10m grading 3.0 g/t to 7.5 g/t.The zone
remains open down plunge.
▇▇▇▇▇▇▇▇▇▇▇ (31.93% Ownership Interest) - Canada
Kinross acquired its ownership interest in the ▇▇▇▇▇▇▇▇▇▇▇ underground
mine, located in northwestern Ontario, Canada, upon completion of the
combination with TVX on January 31, 2003.The Company's share of third quarter
gold production totaled 18,593 ounces, essentially as plan, however, total cash
costs of $265 per ounce were greater than plan due to unbudgeted underground
contractor development work in the PQ zone. In September, ▇▇▇▇▇▇▇▇▇▇▇ took over
development from the contractor and it is anticipated that total cash costs will
return to plan during the fourth quarter.
For the eight-month period ending September 30, 2003, gold production was
46,157 ounces at a total cash cost of $257 per ounce compared to plan production
of 50,671 ounces at $250 per ounce. Operational shortfalls in the first quarter
are largely responsible for the lower than plan gold production.
2003 Third Quarter Report 15
Kinross' expectation for the ▇▇▇▇▇▇▇▇▇▇▇ mine is to produce approximately
18,000 ounces to the Company's account at total cash costs of $255 per ounce in
the fourth quarter of 2003.
Reconciliation of the ▇▇▇▇▇▇▇▇▇▇▇ Mine Three months Eight months
Total Cash Costs per Equivalent Ounce of Gold ended ended
to Consolidated Financial Statements September 30 September 30
(MILLIONS EXCEPT PRODUCTION IN OUNCES AND PER OUNCE AMOUNTS) 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 5.1 $ - $ 12.1 $ -
Site restoration cost accruals - - - -
Change in bullion inventory (0.2) - - -
Operating costs not related to gold production - - (0.2) -
------------------------------------------------------------------------------------------------------------
Operating costs for per ounce calculation purposes $ 4.9 $ - $ 11.9 $ -
------------------------------------------------------------------------------------------------------------
Gold equivalent production - ounces 18,593 - 46,157 -
Total cash costs per equivalent ounce of gold $ 265 $ - $ 257 $ -
Total cash costs are non-GAAP measures. For further information on this
non-GAAP measure, please refer to the disclosure under the heading "Costs and
Expenses - Operations Summary".
Kinross' share of capital expenditures at the ▇▇▇▇▇▇▇▇▇▇▇ mine in the third
quarter of 2003 was $1.0 million, essentially in line with budget.
Positive results continue to be obtained from both barge and underground
infill diamond drilling of the PQ Deep zone. A step-out drill hole, drilling 300
metres north of the known PQ Deep zone, returned 14.6 grams per tonne over 5.4
metres. Elsewhere on the property, diamond drilling on the Camp zone, a
potential small open pit target, returned 8.7 grams per tonne over 24.8 metres.
NEW BRITANNIA (50% Ownership Interest) - Canada
Kinross operates and owns a 50% interest in the New Britannia underground
mine, located in northern Manitoba, acquired in the combination with TVX on
January 31, 2003. During the third quarter 2003, Kinross' share of gold
production was 8,235 ounces at a total cash cost of $325 per ounce. The
Company's share of gold production for the eight months ending September 30,
2003 was 25,060 ounces at a total cash cost of $306 per ounce.
Kinross and its joint venture partner, High River Gold Mines Limited, are
evaluating the future of the mine as a result of the higher than anticipated
mining costs, result of the stronger Canadian dollar and challenging mining
conditions experienced recently. The mine will continue operations as normal
while the joint venture partners reassess the operations.
Kinross' expectation for the New Britannia mine is to produce approximately
14,000 ounces to the Company's account at total cash costs of $305 per ounce in
the fourth quarter of 2003.
16 KINROSS Gold Corporation
Reconciliation of the New Britannia Mine Three months Eight months
Total Cash Costs per Equivalent Ounce of Gold ended ended
to Consolidated Financial Statements September 30 September 30
(MILLIONS EXCEPT PRODUCTION IN OUNCES AND PER OUNCE AMOUNTS) 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 3.1 $ - $ 8.9 $ -
Site restoration cost accruals - - - -
Change in bullion inventory (0.3) - (1.2) -
Operating costs not related to gold production (0.1) - (0.1) -
------------------------------------------------------------------------------------------------------------
Operating costs for per ounce calculation purposes $ 2.7 $ - $ 7.6 $ -
------------------------------------------------------------------------------------------------------------
Gold equivalent production - ounces 8,235 25,060
Total cash costs per equivalent ounce of gold $ 325 $ - $ 306 $ -
Total cash costs are non-GAAP measures. For further information on this
non-GAAP measure, please refer to the disclosure under the heading "Costs and
Expenses - Operations Summary".
Kinross' share of capital expenditures at the New Britannia mine in the
third quarter of 2003 was $0.2 million with the majority of those expenditures
focused on ore development.
LUPIN (100% Ownership Interest) - Canada
In August 2003, Kinross announced the immediate suspension of operations at
the Lupin mine in Canada due to the poor economic performance of the operation
over a protracted period of time. As a result, gold production during the third
quarter fell to 11,690 ounces, at a total cash cost of $395 per ounce, down from
the 25,534 ounces achieved during the second quarter of 2003.The plant and
equipment has been placed on care and maintenance pending the results of the
review of future alternatives for the property. Personnel remain on site to
continue with environmental management programs to ensure compliance with all
regulatory requirements.
Kinross is reviewing future alternatives for the property including the
development of a mine plan to extract the shaft and crown pillars.These pillars
and other remnant mining are expected to contain almost 110,000 ounces of gold
(approximately 400,000 tonnes at an average grade of about 8.5 grams of gold per
tonne). Recovery of these pillars through 2004 has the potential for the
operation to produce a comparable amount of gold to that originally planned for
2004, but at a higher grade and, consequently, at lower total cash costs per
ounce. In addition, preliminary plans indicate that the materials and supplies
inventory will be consumed during this program and cash flow will support the
remaining mine values, therefore no impairment has been recorded during the
third quarter of 2003.
Reconciliation of the Lupin Mine Three months Eight months
Total Cash Costs per Equivalent Ounce of Gold ended ended
to Consolidated Financial Statements September 30 September 30
(MILLIONS EXCEPT PRODUCTION IN OUNCES AND PER OUNCE AMOUNTS) 2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------
Operating costs per financial statements $ 11.4 $ - $ 32.2 $ -
Site restoration cost accruals (0.2) - (0.9) -
Change in bullion inventory (1.0) - (2.9) -
Operating costs not related to gold production (5.6) - (5.6) -
------------------------------------------------------------------------------------------------------------
Operating costs for per ounce calculation purposes $ 4.6 $ - $ 22.8 $ -
------------------------------------------------------------------------------------------------------------
Gold equivalent production - ounces 11,690 56,008
Total cash costs per equivalent ounce of gold $ 395 $ - $ 407 $ -
Total cash costs are non-GAAP measures. For further information on this
non-GAAP measure, please refer to the disclosure under the heading "Costs and
Expenses - Operations Summary".
2003 Third Quarter Report 17
ADMINISTRATION
Administration costs include corporate office expenses related to the
overall management of the business which are not part of direct mine operating
costs. Administration expenses totaled $4.7 million in the third quarter and
$16.5 million in the first nine months of 2003, compared to $3.2 million in the
third quarter and $8.0 million in the first nine months of 2002, respectively.
Administrative expenses increased in 2003 due to the completion of the
combination with TVX and Echo Bay. Administrative costs per ounce of equivalent
production for the third quarter of 2003 and 2002 were $11 and $14,
respectively.
EXPLORATION AND BUSINESS DEVELOPMENT
Total exploration and business development expenditures in the third
quarter and first nine months of 2003 were $5.4 million and $18.7 million,
respectively, compared to $2.4 million in the third quarter and $6.5 million in
the first nine months of 2002.
Exploration activities in 2003 focused primarily at and around existing
operating mines and on the Kettle River - Emanuel Creek project. During the
third quarter of 2003, the Company spent $2.0 million on exploration at Kinross
operated mines, including $0.7 million on the Fort ▇▇▇▇ in-pit program as well
as ▇▇▇ and ▇▇▇▇ ▇▇▇▇ projects, $0.6 million on district exploration and
advancing the Gold Hill project at Round ▇▇▇▇▇▇▇▇.▇▇ the ▇▇▇▇▇▇▇▇▇▇▇ Joint
Venture, third quarter expenditures to Kinross' account totaled $0.5 million
advancing the new PQ Deeps deposit and $0.4 million on exploration activities on
the Porcupine Joint Venture in Timmins. At Kettle River a new gold zone, named
the West Zone, has been discovered in the vicinity of the Emanuel Creek deposit.
To date 26 drill holes have pierced the West Zone.A follow-up program has been
designed to define the extent and continuity of mineralized structures. During
the third quarter, drill programs were initiated on the Gurupi project in Brazil
and on the Norseman project in Australia.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation, depletion and amortization totaled $40.0 million in the third
quarter and $108.5 million in the first nine months of 2003 compared to $19.9
million in the third quarter and $61.3 million in the first nine months of 2002.
Depreciation, depletion and amortization have decreased per equivalent ounce of
gold sold to $95 in the third quarter and $92 in the first nine months of 2003,
from $110 in the third quarter and $101 in the first nine months of 2002.The
2003 decrease in depreciation, depletion and amortization per equivalent ounce
of gold sold is due to the cost of the newly acquired assets of TVX and Echo Bay
and the associated production from those assets.
INTEREST EXPENSE
Interest expense totaled $0.6 million in the third quarter and $3.1 million
in the first nine months of 2003, compared to $1.2 million in the third quarter
and $4.0 million in the first nine months of 2002. Interest expense in the first
nine months of 2003 includes interest accrued on the debt component of the
convertible debentures up to September 29, 2003. Interest costs should decline
going forward as these convertible debentures have been redeemed and there will
be no further accrual of interest on the debt component.
18 KINROSS Gold Corporation
INCOME AND MINING TAXES
Kinross is subject to tax in various jurisdictions including Canada, the
United States, Brazil, Russia and Chile. However, the Company has operating
losses and other tax deductions to shelter future taxable income in Canada and
the United States.The third quarter of 2003 liability arises from income taxes
in Russia, Brazil, and Chile. For details on the operating losses and other tax
deductions available to shelter future taxable income please see note 16 to the
2002 audited consolidated financial statements of Kinross.
LIQUIDITY AND FINANCIAL RESOURCES
OPERATING ACTIVITIES
Cash flow provided from operating activities in the third quarter of 2003
was $42.0 million compared to $17.5 million in 2002. Cash flow provided from
operating activities increased in the third quarter of 2003 due to higher gold
equivalent production as a result of the completion of the business combination
with TVX and Echo Bay and higher realized gold prices per ounce of gold sold.
FINANCING ACTIVITIES
On August 28, 2003, Kinross issued 23 million common shares for gross
proceeds of Cdn.$213 million.After giving effect to the closing of the offering,
the total number of common shares outstanding was approximately 338.4
million.The net proceeds from the offering were used to redeem Kinross'
outstanding 5.5% convertible unsecured subordinated debentures. The principal
amount of the convertible debentures was Cdn.$195.6 million.The convertible
debentures were redeemed on September 29, 2003.
During the third quarter of 2003, Kinross issued 32,549 common shares for
net proceeds of $0.3 million pursuant to the employee share incentive plan.
Kinross also issued 340,927 common shares for net proceeds of $1.1 million
pursuant to the employee stock option plan.
The debt component of convertible debentures was reduced by $1.4 million
during the third quarter and by $4.2 million during the first nine months of
2003 compared to $1.3 million during the third quarter and $3.8 million during
the first nine months of 2002. Long-term debt repayments were $0.8 million
during the third quarter of 2003 compared to $0.2 million during 2002. Long-term
debt repayments consisted of scheduled repayments under various capital leases.
No dividends were declared nor paid to the holders of the convertible
preferred shares of subsidiary company Kinam Gold Inc. in 2003 or 2002.
Kinross has unrestricted cash and cash equivalents of $141.2 million and
restricted cash of $5.2 million at September 30, 2003. This restricted cash is
associated with cash deposits that were made by Echo Bay to secure letters of
credit for various financial assurance requirements. On February 27, 2003,
Kinross entered into a credit facility for $125.0 million with a maturity date
of December 31, 2005. At the end of the third quarter, letters of credit had
been issued to replace all of the old financial assurance. Some state agencies
have not released the old financial assurance they were holding, causing
restricted cash for longer than had been anticipated. The remaining restricted
cash is expected to be released during the fourth quarter of 2003.
2003 Third Quarter Report 19
As at September 30, 2003, Kinross' long-term debt was $30.7 million
consisting of $25.0 million of Fort ▇▇▇▇ industrial revenue bonds, $2.8 million
relating to the Kubaka project financing, and various capital leases and other
debt of $2.9 million.The current portion of the long-term debt is $19.6 million,
which includes $15.0 million of repayments on the industrial revenue bonds which
is not mandatory, but planned.
INVESTING ACTIVITIES
Capital expenditures were $27.4 million in the third quarter and $52.3
million in the first nine months of 2003 compared to $8.9 million in the third
quarter and $18.1 million in the first nine months of 2002. Capital expenditures
were spread fairly evenly across all of the operating mines. Capital
expenditures were financed out of cash flow from operating activities.
INVESTMENT IN TVX HELLAS
Since January 2003, the Stratoni lead/zinc mine located in Greece, owned by
TVX Hellas, a subsidiary of the Company, has been shut down. The Company has
been working with the Greek government and potential investors to determine
whether this mine can be reopened under a revised ownership structure in which
the Company will hold a minority interest. If the Company achieves this goal,
the Olympias and Skouries gold projects would also undergo similar changes in
ownership. Resolution is expected in this ▇▇▇▇▇▇▇.▇▇ a protective measure, the
Company has commenced proceedings in Greece to place TVX Hellas, which holds all
of the Greek properties of the Company, into bankruptcy.
COMMODITY PRICE RISKS
Kinross has entered into gold forward sales contracts, spot deferred
forward sales contracts and written call options for some portion of expected
future production to mitigate the risk of adverse price fluctuations. Kinross
does not hold these financial instruments for speculative or trading purposes.
Kinross is not subject to margin requirements on any of its hedging lines.
The outstanding number of ounces, average expected realized prices and
maturities for the gold commodity derivative contracts as at September 30, 2003
are as follows:
Call Average
Ounces Average Options Strike
Year Hedged Price Sold Price
------------------------------------------------------------------
2003 20,000 $ 274 50,000 $ 300
2004 137,500 277 50,000 340
2005 37,500 296 - -
------------------------------------------------------------------
Total 195,000 $ 281 100,000 $ 320
==================================================================
The fair value of the call options sold is recorded in the financial
statements at each measurement date. The fair value of the gold forward sales
and spot deferred forward sales contracts, as at September 30, 2003 was negative
$21.4 million based on a gold price of $388. Kinross will continue to deliver
into these contracts as they mature and not replace them with new contracts.
20 KINROSS Gold Corporation
NEW DEVELOPMENTS
THE ACQUISITION OF CROWN RESOURCES
On October 8, 2003, Kinross announced that it had executed a Letter of
Intent with Crown Resources Corporation ("Crown") whereby Kinross will acquire
Crown and its 100%-owned Buckhorn Mountain gold deposit located in north central
Washington State, USA, approximately 67 kilometres by road from Kinross' Kettle
River gold milling facility.
The Buckhorn Mountain gold deposit is a high-grade skarn gold deposit
located 240 kilometres northwest of Spokane,▇▇▇▇▇▇▇▇▇▇.▇▇ at December 31, 2002,
Crown had reported total proven and probable reserves of 1.94 million tonnes
grading 13.44 grams per tonne gold and further mineralized material of 1.07
million tonnes grading 13.82 grams per tonne gold. In late 2002 and early 2003,
▇▇▇▇▇ completed a very successful 41-hole infill diamond drilling program
designed to upgrade some of the mineralized material to the proven and probable
category.
The current plan, which contemplates the development of an underground mine
rather than an open pit mine, positively addresses major environmental concerns
identified during previous permitting efforts. Kinross is confident that by
working in conjunction with Federal, State and local agencies as well as other
stakeholders, the permitting process, initiated by Crown, will be successful in
obtaining the necessary regulatory approvals to develop an underground mine in a
timely manner. In conjunction with the permitting process, Kinross will review
potential synergies between its Kettle River operation and the Buckhorn Mountain
deposit.
EQUITY INVESTMENTS SOLD
On October 24, 2003, Kinross sold its entire equity ownership stake in
Minefinders (4,250,000 common shares) for net proceeds of Cdn.$43.6 million.
Kinross also sold its entire equity ownership in Endeavour Mining Capital
Corporation (2,026,586 common shares) on November 5, 2003, for net proceeds of
Cdn.$6.8 million.The Company's investments in Minefinders and Endeavour were
deemed not to be strategic on a going forward basis.
OUTLOOK
As at September 30, 2003, Kinross has $141.2 million of unrestricted cash
and $5.2 million of restricted cash, which should become unrestricted during the
fourth quarter. Cash balances have increased due to positive results at
operations. Kinross was able to issue equity, and the proceeds were applied to
redeem 100% of the convertible debentures. Kinross will continue to focus on
improving operational profitability and maximizing the benefit of our investment
in quality projects.The forecast for the full year 2003 is gold equivalent
production of approximately 1.7 million ounces at total cash costs of
approximately $223 per ounce, which implies total cash costs of approximately
$216 for the fourth quarter.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NOVEMBER 5, 2003
2003 Third Quarter Report 21
CONSOLIDATED BALANCE SHEETS
KINROSS GOLD CORPORATION
(EXPRESSED IN MILLIONS OF U.S. DOLLARS)
(UNAUDITED)
AS AT AS AT
SEPTEMBER 30 DECEMBER 31
2003 2002
---------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 141.2 $ 170.6
Restricted cash 5.2 21.1
Accounts receivable and other assets 27.0 15.5
Inventories 98.2 38.9
Marketable securities 1.6 0.1
---------------------------------------------------------------------------------------
273.2 246.2
Property, plant and equipment 811.7 330.0
Goodwill 888.6 -
Long-term investments 31.1 11.8
Future income and mining taxes 16.2 -
Deferred charges and other assets 33.5 10.0
---------------------------------------------------------------------------------------
$2,054.3 $ 598.0
=======================================================================================
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $ 87.3 $ 35.5
Current portion of long-term debt 19.6 23.3
Current portion of site restoration cost accruals 11.5 15.0
---------------------------------------------------------------------------------------
118.4 73.8
Long-term debt 11.1 12.9
Site restoration cost accruals 106.6 42.0
Future income and mining taxes 44.6 3.3
Deferred revenue 2.8 4.5
Other long-term liabilities 6.4 5.5
Debt component of convertible debentures - 21.7
Redeemable retractable preferred shares 2.8 2.5
---------------------------------------------------------------------------------------
292.7 166.2
---------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED SHARES OF SUBSIDIARY COMPANY 12.6 12.9
---------------------------------------------------------------------------------------
COMMON SHAREHOLDERS' EQUITY
Common share capital 1,747.2 1,058.5
Contributed surplus 29.4 12.9
Equity component of convertible debentures - 132.3
Deficit (29.0) (761.4)
Cumulative translation adjustments 1.4 (23.4)
---------------------------------------------------------------------------------------
1,749.0 418.9
---------------------------------------------------------------------------------------
$2,054.3 $ 598.0
=======================================================================================
22 KINROSS Gold Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
KINROSS GOLD CORPORATION
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30
(EXPRESSED IN MILLIONS OF U.S. DOLLARS EXCEPTPER SHARE AMOUNTS)
THREE MONTHS NINE MONTHS
(UNAUDITED) ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------
REVENUE
Mining revenue $ 153.8 $ 56.5 $ 428.6 $ 184.5
Interest and other income 2.4 6.0 5.2 13.7
Mark-to-market (loss) gain on call options (0.9) (0.3) 0.3 (1.9)
------------------------------------------------------------------------------------------------------------
155.3 62.2 434.1 196.3
------------------------------------------------------------------------------------------------------------
EXPENSES
Operating 107.1 39.0 301.4 126.9
General and administrative 4.7 3.2 16.5 8.0
Exploration and business development 5.4 2.4 18.7 6.5
Depreciation, depletion and amortization 40.0 19.9 108.5 61.3
(Gain) loss on sale of assets (0.2) (0.5) 0.2 (2.0)
Loss on redemption of convertible debentures 1.1 - 1.1 -
Foreign exchange (gain) loss (0.5) - (0.8) 3.0
Interest expense on long-term liabilities 0.6 1.2 3.1 4.0
Writedown of marketable securities - - 0.1 -
------------------------------------------------------------------------------------------------------------
158.2 65.2 448.8 207.7
------------------------------------------------------------------------------------------------------------
(2.9) (3.0) (14.7) (11.4)
Minority interest - - (0.1) -
Share in loss of investee companies - (0.8) - (0.6)
------------------------------------------------------------------------------------------------------------
Loss before taxes and dividends on convertible
preferred shares of subsidiary company (2.9) (3.8) (14.8) (12.0)
Provision for income and mining taxes (3.0) (1.7) (7.1) (4.7)
Loss for the period before dividends on convertible
preferred shares of subsidiary company (5.9) (5.5) (21.9) (16.7)
Dividends on convertible preferred shares
of subsidiary company (0.2) (0.3) (0.6) (1.3)
------------------------------------------------------------------------------------------------------------
Net loss for the period $ (6.1) $ (5.8) $ (22.5) $ (18.0)
============================================================================================================
Attributable to common shareholders:
Net loss for the period $ (6.1) $ (5.8) $ (22.5) $ (18.0)
Increase in equity component of convertible
debentures (2.2) (1.3) (6.5) (5.5)
Gain on redemption of convertible debentures 16.5 - 16.5 -
------------------------------------------------------------------------------------------------------------
Net earnings (loss) attributable to common shares $ 8.2 $ (7.1) $ (12.5) $ (23.5)
============================================================================================================
Earnings (loss) per share
Basic $ 0.03 $ (0.06) $ (0.04) $ (0.20)
Diluted $ 0.03 $ - $ - $ -
Weighted average number of common shares outstanding
Basic 323.4 119.4 297.4 118.2
Diluted 326.2 - - -
Total outstanding and issued common shares at September 30 338.4 119.5
2003 Third Quarter Report 23
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30
(EXPRESSED IN MILLIONS OF U.S. DOLLARS )
THREE MONTHS NINE MONTHS
(UNAUDITED) ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
2003 2002 2003 2002
------------------------------------------------------------------------------------------------------------
NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES:
OPERATING:
Loss for the period before dividends on convertible
preferred shares $ (5.9) $ (5.5) $ (21.9) $ (16.7)
Items not affecting cash:
Depreciation, depletion and amortization 40.0 19.9 108.5 61.3
Future income and mining taxes (2.6) - (4.7) -
Deferred revenue realized (0.6) (1.3) (1.7) (3.8)
Site restoration cost accruals 2.4 0.8 6.1 2.3
Other 1.0 (0.8) 6.0 (0.8)
------------------------------------------------------------------------------------------------------------
34.3 13.1 92.3 42.3
Site restoration cash expenditures (4.8) (2.4) (9.8) (5.0)
Changes in non-cash working capital items
Accounts receivable and other assets 1.7 6.9 18.9 5.9
Inventories 2.2 (6.3) (7.3) (2.7)
Marketable securities 0.5 - 1.1 2.5
Accounts payable and accrued liabilities 3.8 5.8 (21.6) 3.1
Effect of exchange rate changes on cash 4.3 0.4 8.1 2.4
------------------------------------------------------------------------------------------------------------
Cash flow provided from operating activities 42.0 17.5 81.7 48.5
------------------------------------------------------------------------------------------------------------
FINANCING:
Issuance of common shares 147.6 0.2 150.9 19.5
Redemption of convertible debentures (144.8) - (144.8) -
Acquisition of preferred shares of subsidiary company (0.2) - (0.2) (11.4)
Reduction of debt component of convertible debentures (1.4) (1.3) (4.2) (3.8)
Repayment of debt (0.8) (0.2) (10.0) (12.4)
------------------------------------------------------------------------------------------------------------
Cash flow provided from used in financing activities 0.4 (1.3) (8.3) (8.1)
------------------------------------------------------------------------------------------------------------
INVESTING:
Additions to property, plant and equipment (27.4) (8.9) (52.3) (18.1)
Business acquisitions, net of cash acquired - - (81.4) -
Long-term investments and other assets 1.0 0.2 (6.7) 2.1
Proceeds from the sale of property, plant and equipment 0.2 0.5 0.2 0.6
Decrease (increase) in restricted cash - (17.1) 37.4 (21.5)
------------------------------------------------------------------------------------------------------------
Cash flow used in investing activities (26.2) (25.3) (102.8) (36.9)
------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 16.2 (9.1) (29.4) 3.5
Cash and cash equivalents, beginning of period 125.0 93.6 170.6 81.0
Cash and cash equivalents, end of period $ 141.2 $ 84.5 $ 141.2 $ 84.5
============================================================================================================
Supplementary disclosure of cash flow information:
Cash paid for: Interest $ 2.0 $ 0.2 $ 6.4 $ 4.9
Income taxes $ 2.6 $ 2.1 $ 6.3 $ 3.7
24 KINROSS Gold Corporation
CONSOLIDATED STATEMENT OF
COMMON SHAREHOLDERS' EQUITY
KINROSS GOLD CORPORATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(EXPRESSED IN MILLIONS OF U.S. DOLLARS)
(UNAUDITED)
CUMULATIVE
COMMON CONTRIBUTED CONVERTIBLE TRANSLATION
SHARES SURPLUS DEBENTURES DEFICIT ADJUSTMENTS TOTAL
------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 2002 $ 1,058.5 $ 12.9 $ 132.3 $ (761.4) $ (23.4) $ 418.9
Reduction of stated capital (761.4) - - 761.4 - -
Issuance of common shares 1,450.1 - - - - 1,450.1
Increase in equity component
of convertible debentures - - 6.7 (6.5) - 0.2
Redemption
of convertible debentures - 16.5 (139.0) - - (122.5)
Net loss for the period - - - (22.5) - (22.5)
Cumulative translation
adjustments - - - - 24.8 24.8
------------------------------------------------------------------------------------------------------------------
BALANCE,
SEPTEMBER 30, 2003 $ 1,747.2 $ 29.4 $ - $ (29.0) $ 1.4 $ 1,749.0
------------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 2001 $ 945.7 $ 12.9 $ 124.8 $ (723.2) $ (28.6) $ 331.6
Issuance of common shares 19.6 - - - - 19.6
Increase in equity component
of convertible debentures - - 5.6 (5.5) - 0.1
Net loss for the period - - - (18.0) - (18.0)
Cumulative translation
adjustments - - - - 3.7 3.7
------------------------------------------------------------------------------------------------------------------
Balance,
September 30, 2002 $ 965.3 $ 12.9 $ 130.4 $ (746.7) $ (24.9) $ 337.0
==================================================================================================================
2003 Third Quarter Report 25
NOTES TO THE FINANCIAL STATEMENTS
KINROSS GOLD CORPORATION
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30
(ALL DOLLAR AMOUNTS ARE EXPRESSED IN MILLIONS OF U.S. DOLLARS,
EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim consolidated financial statements (the "financial statements")
of Kinross Gold Corporation (the "Company") have been prepared in accordance
with the accounting principles and methods of application disclosed in the
consolidated financial statements for the year ended December 31, 2002, except
for those indicated below.
The accompanying interim unaudited consolidated financial statements
include all adjustments that are, in the opinion of management, necessary for a
fair presentation.These financial statements do not include all disclosures
required by Canadian Generally Accepted Accounting Principles ("CDN GAAP") for
annual financial statements and accordingly the financial statements should be
read in conjunction with the financial statements and notes thereto contained in
the Company's annual report for the year ended December 31, 2002.
2. NEW PRONOUNCEMENTS
In 2003, the Accounting Standards Board of CICA issued Accounting Guideline
No. 14 -Disclosure of Guarantees, which is effective for financial periods
ending after December 15, 2002.The guideline requires the disclosure of
guarantees including indemnification pursuant to contractual arrangement.
For the nine months ended September 20, 2003, the Company had no contracts
or obligations that qualified as a guarantee under ACG - 14.
3. FINANCIAL INSTRUMENTS
The Company manages its exposure to fluctuations in commodity prices,
foreign exchange rates and interest rates by entering into derivative financial
instrument contracts in accordance with the formal risk management policy
approved by the Company's Board of Directors. The Company does not hold or issue
derivative contracts for speculative or trading purposes.
Realized and unrealized gains or losses on derivative contracts, that
qualify for hedge accounting, are deferred and recorded in income when the
underlying hedged transaction is recognized. Gains on the early settlement of
gold hedging contracts are recorded as deferred revenue on the balance sheet and
included in income over the original delivery schedule of the hedged production.
Premiums received at the inception of written call options are recorded as
a liability. Changes in the fair value of the liability are recognized currently
in earnings. For the nine months ended September 30, 2003, the mark-to-market
adjustments decreased the liability by $0.3 million (2002 - 1.9 million).
26 KINROSS Gold Corporation
4. STOCK OPTIONS
The Company's stock option plan is described in note 14 of the consolidated
financial statements for the year ended December 31, 2002.The Company has
elected not to use the fair value method of accounting for stock options. As a
result, the Company does not recognize compensation expense nor the fair value
of the options issued to its employees. No stock-based awards are made available
to non-employees.
Had compensation expense for the stock-based compensation plans been
determined based upon the fair value method of accounting for awards granted on
or after January 1, 2002, pro forma net loss attributable to common shares would
have amounted to $13.0 million (2002 - $23.6 million) and pro forma EPS would
have remained at a loss of $0.04 per share for the nine month period ended
September 30, 2003 (2002 - $0.20). In the third quarter of 2003 pro forma net
earnings attributable to common shares would have amounted to $8.1 million (2002
- loss of $7.1 million) and pro forma earnings per share would have remained at
$0.03 (2002 - loss of $0.06).The fair value of the options granted during the
nine month period ended September 30, 2003 is estimated to be $0.5 million (2002
- $0.1 million).The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumption used for grants in the nine month period ended September 30,
2003: dividend yield of 0.0%, expected volatility of 69.9%, risk-free interest
rate of 2.75% and expected lives of 5 years.The Company has not included those
options outstanding on the date of adoption of this new recommendation in the
calculation if its pro forma earnings per share for the period.
5. SEGMENTED INFORMATION
The Company operates six gold mines and has a significant interest in five
joint ventures. In addition, the Company has a 90% interest in E-Crete, a
producer of aerated concrete, and several other gold mining assets in various
stages of reclamation, closure, care and maintenance and development and two
corporate offices in Canada and the United ▇▇▇▇▇▇.▇▇ of December 31, 2001, the
Company no longer consolidates the Zimbabwe operation as a result of the
political situation in that ▇▇▇▇▇▇▇.▇▇ the products and services in each of the
reportable segments, except for the corporate activities, are essentially the
same, the reportable segments have been determined at the level where decisions
are made on the allocation of resources and capital, and where complete internal
financial statements are available.
2003 Third Quarter Report 27
AS AT SEPTEMBER 30, 2003 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,2003:
OWNERSHIP MINING OPERATING
LOCATION INTEREST REVENUE COSTS
-------------------------------------------------------------------------------------
Operated by Kinross
Fort ▇▇▇▇ Alaska 100% $ 105.0 $ 73.7
Kubaka Russia 98.1% 43.3 22.7
Round Mountain Nevada 50% 97.8 54.8
Lupin Nunavut 100% 23.8 32.2
New Britannia Manitoba 50% 9.8 8.9
Joint Venture participant
La Coipa Chile 50% 33.4 25.7
Crixas Brazil 50% 22.3 7.3
Brasilia Brazil 49% 23.3 14.4
▇▇▇▇▇▇▇▇▇▇▇ Ontario 32% 16.0 12.1
Porcupine Ontario 49% 61.0 41.5
Other
E-Crete Arizona 90% - 1.8
Corporate and other (b) (7.1) 6.3
-------------------------------------------------------------------------------------
Total $ 428.6 $ 301.4
=====================================================================================
AS AT SEPTEMBER 30, 2002 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,2002:
Operated by Kinross
Fort ▇▇▇▇ Alaska 100% $ 92.6 $ 72.8
Kubaka Russia 54.7% 47.1 20.6
Joint Venture participant
Porcupine Ontario 49% 43.7 27.9
Other
E-Crete Arizona 88% - 2.2
Corporate and other (b) 1.1 3.4
-------------------------------------------------------------------------------------
Total $ 184.5 $ 126.9
=====================================================================================
(a) includes $95.0 million (2002 - $78.9 million) in cash and cash
equivalents held at the Corporate level.
(b) includes Corporate and other non core mining operations.
28 KINROSS Gold Corporation
AS AT SEPTEMBER 30, 2003 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,2003:
DEPRECIATION,
DEPLETION SEGMENT
INTEREST INTEREST AND PROFIT SEGMENT CAPITAL
REVENUE EXPENSE AMORTIZATION (LOSS) ASSETS EXPENDITURES
----------------------------------------------------------------------------------------------------------
Operated by Kinross
Fort ▇▇▇▇ $ - $ 0.7 $ 28.4 $ 0.5 $ 256.0 $ 19.2
Kubaka 0.1 0.1 12.9 7.3 63.1 0.6
Round Mountain - - 25.1 16.5 124.8 4.7
Lupin - - 3.3 (12.3) 30.0 4.7
New Britannia - - 3.8 (3.5) 18.3 0.9
Joint Venture participant
La Coipa - - 4.4 2.1 56.6 0.4
Crixas 0.6 - 7.1 7.3 58.0 1.8
Brasilia 0.7 - 4.0 6.3 132.7 3.4
▇▇▇▇▇▇▇▇▇▇▇ - - 5.7 (3.0) 71.4 1.8
Porcupine - - 17.7 0.1 83.4 5.8
Other
E-Crete - 0.2 0.4 (2.0) 7.9 -
Corporate and other (b) 1.4 2.1 (4.3) (32.6) 1,152.1 9.0
----------------------------------------------------------------------------------------------------------
Total $ 2.8 $ 3.1 $ 108.5 $ (13.3) $ 2,054.3 $ 52.3
==========================================================================================================
AS AT SEPTEMBER 30, 2002 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002.
Operated by Kinross
Fort ▇▇▇▇ $ - $ 1.2 $ 37.1 $ (19.4) $ 279.9 $ 12.0
Kubaka 0.2 0.2 13.9 13.2 61.4 0.1
Joint Venture participant
Porcupine - - 13.0 1.5 84.0 5.0
Other
E-Crete - 0.4 1.0 (3.3) 8.3 0.5
Corporate and other (b) 1.0 2.2 (3.7) (5.4) 98.8 0.5
----------------------------------------------------------------------------------------------------------
Total $ 1.2 $ 4.0 $ 61.3 $ (13.4) $ 532.4 $ 18.1
==========================================================================================================
2003 Third Quarter Report 29
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003:
OWNERSHIP MINING OPERATING
LOCATION INTEREST REVENUE COSTS
-------------------------------------------------------------------------------------
Operated by Kinross
Fort ▇▇▇▇ Alaska 100% $ 37.0 $ 25.4
Kubaka Russia 98.1% 15.6 8.5
Round Mountain Nevada 50% 34.5 19.8
Lupin Nunavut 100% 7.1 11.5
New Britannia Manitoba 50% 3.5 3.0
Joint Venture participant
La Coipa Chile 50% 11.2 7.9
Crixas Brazil 50% 8.0 2.1
Brasilia Brazil 49% 8.7 6.0
▇▇▇▇▇▇▇▇▇▇▇ Ontario 32% 7.6 5.1
Porcupine Ontario 49% 22.5 14.1
Other
E-Crete Arizona 90% - 0.6
Corporate and other (a) (1.9) 3.1
-------------------------------------------------------------------------------------
Total $ 153.8 $ 107.1
=====================================================================================
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002:
Operated by Kinross
Fort ▇▇▇▇ Alaska 100% $ 29.6 $ 20.8
Kubaka Russia 54.7% 13.9 5.6
Joint Venture participant
Porcupine Ontario 49% 13.8 11.0
Other
E-Crete Arizona 88% - 0.8
Corporate and other (a) (0.8) 0.8
-------------------------------------------------------------------------------------
Total $ 56.5 $ 39.0
=====================================================================================
(a) includes Corporate and other non core mining operations.
RECONCILIATION OF REPORTABLE OPERATING SEGMENT LOSS TO NET LOSS FOR THE PERIOD:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
2003 2002 2003 2002
---------------------------------------------------------------------------------------------------------
Segment loss $ 9.5 $ (4.6) $ 19.3 $ (8.0)
Add (deduct) items not included in segment (loss) profit:
Corporate and other (11.5) 1.1 (32.6) (5.4)
---------------------------------------------------------------------------------------------------------
(2.0) (3.5) (13.3) (13.4)
(Loss) gain on sale of assets 0.2 0.5 (0.2) 2.0
Minority interest - - (0.1) -
Writedown of marketable securities - - (0.1) -
Loss on redemption of convertible debentures (1.1) - (1.1) -
Share in loss of investee companies - (0.8) - (0.6)
Provision for income taxes (3.0) (1.7) (7.1) (4.7)
Dividends on convertible preferred shares of subsidiary company (0.2) (0.3) (0.6) (1.3)
---------------------------------------------------------------------------------------------------------
Net loss for the period $ (6.1) $ (5.8) $ (22.5) $ (18.0)
=========================================================================================================
30 KINROSS Gold Corporation
FOR THE THREE MONTHS END SEPTEMBER 30, 2002:
DEPRECIATION,
DEPLETION SEGMENT
INTEREST INTEREST AND PROFIT CAPITAL
REVENUE EXPENSE AMORTIZATION (LOSS) EXPENDITURES
---------------------------------------------------------------------------------------------
Operated by Kinross
Fort ▇▇▇▇ $ - $ 0.1 $ 8.6 $ 2.4 $ 8.0
Kubaka - - 4.7 2.3 0.1
Round Mountain - - 9.5 4.6 3.5
Lupin - - 1.2 (5.6) 3.4
New Britannia - - 1.5 (1.2) 0.2
Joint Venture participant
La Coipa - - 1.2 1.6 0.1
Crixas 0.1 - 2.5 2.3 0.8
Brasilia 0.3 - 1.5 3.3 2.2
▇▇▇▇▇▇▇▇▇▇▇ - - 2.3 (0.4) 1.0
Porcupine - - 7.5 0.5 2.5
Other
E-Crete - - 0.1 (0.3) -
Corporate and other (a) 0.5 0.5 (0.6) (11.5) 5.6
---------------------------------------------------------------------------------------------
Total $ 0.9 $ 0.6 $ 40.0 $ (2.0) $ 27.4
=============================================================================================
FOR THE THREE MONTHS END SEPTEMBER 30, 2002:
Operated by Kinross
Fort ▇▇▇▇ $ - $ 0.3 $ 13.8 $ (5.9) $ 7.6
Kubaka 0.1 - 4.1 4.5 -
Joint Venture participant
Porcupine - - 4.3 (2.1) 1.0
Other
E-Crete - 0.2 0.2 (1.1) 0.1
Corporate and other (a) 0.3 0.7 (2.5) 1.1 0.2
---------------------------------------------------------------------------------------------
Total $ 0.4 $ 1.2 $ 19.9 $ (3.5) $ 8.9
=============================================================================================
ENTERPRISE WIDE DISCLOSURE:
GEOGRAPHIC INFORMATION:
MINING REVENUE MINING
PROPERTIES, PLANT
THREE MONTHS NINE MONTHS AND EQUIPMENT
ENDED ENDED AS AT
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
2003 2002 2003 2002 2003 2002
---------------------------------------------------------------------------------------
United States $ 71.5 $ 28.7 $ 202.8 $ 90.2 $ 345.4 $ 244.8
Russia 15.6 13.8 43.3 47.0 12.8 15.9
Chile 11.2 - 33.4 3.1 46.2 -
Brazil 16.7 - 45.6 - 166.0 -
Other - - - - 5.2 5.2
---------------------------------------------------------------------------------------
Total foreign 115.0 42.5 325.1 140.3 575.6 265.9
Canada 38.8 14.0 103.5 44.2 236.1 82.6
---------------------------------------------------------------------------------------
Total $ 153.8$ 56.5 $ 428.6$ 184.5 $ 811.7 $ 348.5
=======================================================================================
2003 Third Quarter Report 31
6. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share ("EPS") has been calculated using the weighted
average number of shares outstanding during the period. Diluted EPS is
calculated using the treasury stock method.The calculation of diluted earnings
per share assumes that the options, common share purchase warrants, convertible
debentures, redeemable retractable preferred shares and convertible preferred
shares of subsidiary company were exercised or converted at the beginning of the
period, or time of issue, if later. Exercise or conversion of the options,
common share purchase warrants, convertible debentures, redeemable retractable
preferred shares and convertible preferred shares of subsidiary company would
have had no dilutive effect for the quarter ended September 30, 2002 and the
nine month periods ended September 30, 2003 and 2002.
The average price of the common shares during the third quarter of 2003 was
$7.01 (2002 - $6.01) and during the nine-month period was $6.80 (2002 - $5.05).
THREE MONTHS NINE MONTHS
ENDED SEPT. 30 ENDED SEPT. 30
2003 2002 2003 2002
---------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding at beginning of period 323,422 119,442 297,352 118,163
Add: Options, warrants and participating
securities as if issued, exercised and
outstanding at beginning of period:
Options 1,036 - - -
Echo Bay warrants 1,753 - - -
---------------------------------------------------------------------------------------------
Weighted average number of common shares
used for diluted earnings per share 326,211 119,442 297,352 118,163
=============================================================================================
7. CONVERTIBLE DEBENTURES
On September 29, 2003, the Company redeemed all of its unsecured
subordinated convertible debentures ("Debentures") for $144.8 million (Cdn$195.6
million).
These Debentures bore interest at 5.5% per annum, were to mature on
December 5, 2006 and, at the holders' option were convertible into common shares
of the Company at a conversion price of Cdn$40.05 per share.
The Debentures were being accounted for in accordance with their substance
and were presented in the financial statements in their debt and equity
component parts, measured at their respective fair values at the time of issue.
The cost of redemption was allocated based on their respective fair values
of the components at the date of redemption.The redemption of the Debentures
resulted in a loss on redemption of the debt component of the Debentures of
approximately $1.1 million and a net gain on redemption of the equity component
of the Debentures of approximately $16.5 million.The loss on the debt component
has been charged against income and the gain on the equity component has been
accounted for as an increase to contributed surplus.
32 KINROSS Gold Corporation
8. BUSINESS ACQUISITIONS
(a) On January 28, 2003, the shareholders of the Company approved the
consolidation of the issued and outstanding common shares of the Company on the
basis of one consolidated common share for each three old common shares. At the
same meeting, the shareholders of the Company approved the elimination of the
Company's deficit balance at December 31, 2002 of $761.4 million through a
reduction of the Company's stated share capital account.
On January 28, 2003, the Company approved the issuance of that number of
common shares of the Company necessary to effect a combination with Echo Bay
Mines Ltd. ("Echo Bay") and TVX Gold Inc. ("TVX").The combination was carried
out as a plan of arrangement whereby each holder of TVX common shares received
2.1667 common shares of the Company.Also pursuant to the arrangement,
shareholders of Echo Bay received 0.1733 common shares of the Company for each
Echo Bay common share.The exchange ratio reflects the three for one
consolidation of the Company's common shares described above.The Company issued
177.8 million common shares to the shareholders of Echo Bay (other than itself)
and TVX with an aggregate fair value of $1,269.8 million with respect to these
acquisitions.
In a separate transaction, TVX acquired Newmont Mining Corporation's 50%
non-controlling interest in the TVX Newmont Americas joint venture ("TVX Newmont
JV") for an aggregate purchase of $180.0 million.The purchase price was
satisfied using TVX's available cash of $85.5 million and cash advanced by the
Company to TVX of $94.5 million.
Upon completion of the arrangement and TVX's purchase of Newmont's interest
in the TVX Newmont JV, the Company owns all of the outstanding TVX common shares
and Echo Bay common shares and owns, indirectly, all of the TVX Newmont JV.TVX
holds interests in various operating mines around the world, including, those
held through its 50% controlling interest in the TVX Newmont JV.The underlying
operating mines in the TVX Newmont JV are located in Canada, Brazil, and Chile.
The production from the TVX Newmont JV in 2002 was 473,602 ounces of gold
equivalent.
Echo Bay holds interests in various operating mines in Canada and the
United States. Echo Bay's share of production from these mines in 2002 was
522,208 ounces of gold equivalent.
The acquisitions have been accounted for using the purchase method of
accounting in accordance with both sections 1581 "Business Combinations", of the
CICA Handbook for the purposes of CDN GAAP and Statement of Financial Accounting
Standards ("SFAS") 141, "Business Combinations", for the purposes of United
States generally accepted accounting principles ("U.S. GAAP"). Pursuant to the
purchase method of accounting under both CDN and U.S. GAAP, the TVX and Echo Bay
identifiable assets acquired and liabilities assumed have been recorded at their
fair values as of the effective date of the acquisition.The excess of the
purchase price over such fair value has been recorded as goodwill. In accordance
with CICA Handbook Section 3062, "Goodwill and Other Intangible Assets", for
purposes of CDN GAAP, and SFAS 142, "Goodwill and Other Intangible Assets", for
purposes of U.S. GAAP, goodwill will be assigned to specific reporting units and
will not be amortized.
The goodwill resulting from the preliminary purchase price allocation is
$888.6 million. The purchase price allocation is preliminary as the Company is
currently in the process of estimating the fair values of the acquired property,
plant and equipment based on the quantity of proven and probable reserves and
undeveloped mineral interests at each site and the estimated future production
costs and capital expenditures required to produce the reserve material and the
replacement cost of land, buildings and equipment; the estimation of the fair
values of
2003 Third Quarter Report 33
other long-term liabilities for reclamation and remediation liabilities; and
estimating the fair value of mining royalty properties and other based on the
expected returns on those royalties. The determination of these fair values is
expected to be completed in the fourth quarter of 2003. Goodwill is subject to a
determination of fair values and will be reviewed for possible impairment at
least annually or more frequently upon the occurrence of certain events or when
circumstances indicate the reporting unit's carrying value, including goodwill
that was allocated to it, is greater than its fair value. Kinross has not
determined if a goodwill impairment exists and expects to make that
determination annually, or more frequently as circumstances dictate, in
accordance with CDN and U.S. GAAP.
The fair values of the assets and liabilities of Echo Bay and TVX and the
preliminary allocation of the purchase consideration are as follows:
IN MILLIONS EXCEPT
SHARE PRICE AND
NUMBER OF SHARES
ECHO BAY TVX
---------------------------------------------------------------------------------------------
Calculation of preliminary allocation of purchase price:
Common shares of the Company issued to the Echo Bay and
TVX shareholders 93,820,424 93,930,887
The average closing market price of the Company's shares over the
four trading days from June 6 through June 11, 2002 $ 7.14 $ 7.14
---------------------------------------------------------------------------------------------
Fair value of the Company's common stock issued 669.9 670.7
Plus - fair value of warrants and options to be assumed by
the Company (100% vested) 22.5 6.8
Plus - direct acquisition costs incurred by the Company 6.1 6.1
Less - the Company's previous 10.6% ownership interest in Echo Bay (63.8) -
---------------------------------------------------------------------------------------------
Total purchase price 634.7 683.6
Plus - fair value of liabilities assumed by the Company
Accounts payable and accrued liabilities 21.8 38.1
Current portion of site restoration cost accruals 2.5 1.1
Long-term debt (including current portion) - 2.1
Site restoration cost accruals 42.4 12.9
Future income tax liabilities 1.0 42.0
Other long-term liabilities - 8.1
Liability with respect to TVX Newmont JV assets acquired - 94.5
Less - fair value of assets acquired by the Company
Cash (16.4) (27.8)
Short-term investments (1.9) (0.5)
Accounts receivable and other assets (2.8) (20.4)
Inventories (19.9) (20.7)
Prepaid expense and other (2.7) (2.5)
Properties, plant and equipment (169.6) (337.8)
Restricted cash (10.1) (11.3)
Future income tax assets - (13.8)
Other non-current assets (24.9) (13.1)
---------------------------------------------------------------------------------------------
Residual purchase price allocated to non-amortizable goodwill $ 454.1 $ 434.5
=============================================================================================
34 KINROSS Gold Corporation
(b) On December 5, 2002, the Company entered into purchase agreements with
four of the five Russian shareholders (holding in aggregate 44.17% of the shares
of Omolon Gold Mining Corporation ("Omolon")). The four shareholders agreed to
tender their shares in Omolon and ▇▇▇▇▇▇ agreed to pay $44.7 million including
legal fees for said shares. As at March 31, 2003, the Company owns 98.1% of
Omolon.
The fair value of the assets and liabilities of the recently acquired 45.3%
interest in Omolon and the allocation of the purchase consideration are as
follows:
IN MILLIONS EXCEPT
SHARE PRICE AND
NUMBER OF SHARES
---------------------------------------------------------------------------
Fair value of assets acquired by the Company:
Cash $ 26.1
Accounts receivable 2.9
Inventories 12.3
Property, plant and equipment 13.8
Other non-current assets 1.9
Less - fair value of liabilities assumed by the Company
Accounts payable and accrued liabilities (5.7)
Current portion of site restoration cost accruals (0.2)
Long-term debt (including current portion) (2.2)
Site restoration obligations (3.2)
Non-controlling interest (1.0)
---------------------------------------------------------------------------
Total cash consideration $ 44.7
===========================================================================
Financed by:
Cash (including cash acquired - $26.1 million) $ 44.7
---------------------------------------------------------------------------
The combination of the Company, Echo Bay and TVX was effective on January
31, 2003. If the combination had been effective as of January 1, 2003, the pro
forma revenues of the Company for the nine month period ending September 30,
2003, would have been increased by $28.9 million to $463.0 million and the net
loss would have been reduced by $3.4 million to $19.1 million for this
period.These pro forma results were adjusted to exclude the transaction costs
incurred by Echo Bay and TVX, and depreciation, depletion and amortization were
calculated based on the allocation determined in the preliminary purchase
equation pertaining to the combination. The pro forma financial information does
not purport to represent what the Company's results of operations would have
been had the acquisition occurred at the beginning of 2003 or to project the
Company's results of operations for any future periods.
9. LEGAL PROCEEDINGS AND CONTINGENCIES
DERIVATIVE ACTION
In October 1996, a shareholder derivative action was filed in the Court of
Chancery of Delaware on behalf of a shareholder of the Company, entitled ▇▇▇▇▇
▇▇▇▇▇ v. ▇▇▇▇▇▇ ▇.▇▇▇▇, et al., C.A. No. 15255-NC, against Cyprus Amax, the
directors of the Company and the Company as a nominal defendant.The complaint
alleges, among other things, that the defendants engaged in self-dealing in
connection with the Company's entry in March 1996 into a demand
2003 Third Quarter Report 35
loan facility provided by Cyprus ▇▇▇▇.The complaint seeks, among other things, a
declaration that the demand loan facility is not entirely fair to the Company
and damages in an unspecified amount.The Company subsequently filed a motion to
dismiss the action with the court. On October 30, 2003, the Court of Chancery of
Delaware granted the Company's motion to dismiss the complaint.The plaintiff has
the right to appeal the decision of the court within thirty days of the date of
the judgement.The Company believes that the complaint is without merit and will
continue to defend the matter as required.
CLASS ACTION
The Company was named as a defendant in a class action complaint filed on
or about April 26, 2002, entitled ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, et al. v. Kinross Gold
U.S.A., Inc., et al., Case No. CV-S-02-0605-KJD-RJJ, brought in the United
States District Court for the District of Nevada. Defendants named in the
complaint are Kinross and its subsidiaries, Kinross Gold U.S.A., Inc. and Kinam
Gold Inc., and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, president and C.E.O. of the Company. The
complaint is brought on behalf of two potential classes, those who tendered
their Kinam preferred stock into the tender offer for the Kinam $3.75 Series B
Preferred Stock made by Kinross Gold U.S.A. and those who did not. Plaintiffs
argue, among other things, that amounts historically advanced by the Company to
Kinam should be treated as capital contributions rather than loans, that the
purchase of Kinam preferred stock from institutional investors in July 2001 was
a constructive redemption of the preferred stock, an impermissible amendment to
the conversion rights of the preferred stock, or constituted the commencement of
a tender offer, that the Company and its subsidiaries have intentionally taken
actions for the purpose of minimizing the value of the Kinam preferred stock,
and that the amount offered in the tender offer of $16.00 per share was not a
fair valuation of the Kinam preferred stock. The complaint alleges breach of
contract based on the governing provisions of the Kinam preferred stock, breach
of fiduciary duties, violations of the "best price" rule under Section 13(e) of
the Securities Exchange Act of 1934, as amended, and the New York Stock Exchange
rules, violations of Section 10(b) and 14(e) of the Securities Exchange Act of
1934, as amended, and Rules 10b-5 and 14c-6(a) hereunder, common law fraud based
on the acts taken and information provided in connection with the tender offer,
violation of Nevada's anti-racketeering law, and control person liability under
Section 20A of the Securities Exchange Act of 1934, as amended. A second action
seeking certification as a class action and based on the same allegations was
also filed in the United States district Court for the District of Nevada on or
about May 22, 2002. It names the same parties as defendants.This action has been
consolidated into the Brown case and the Brown plaintiffs have been designated
as lead plaintiffs.The plaintiffs seek damages ranging from $9.80 per share,
plus accrued dividends, to $39.25 per share of Kinam preferred stock or, in the
alternative,the issuance of 26.875 to 80.625 shares of the Company for each
Kinam preferred share.They also seek triple damages under Nevada statutes.The
Company brought a motion for judgement on the pleadings with respect to the
federal securities claims based on fraud. Discovery was stayed pending the
resolution of this matter. On September 29, 2003, the Court ruled that
plaintiffs had failed to adequately state a federal securities fraud claim.The
plaintiffs were given an opportunity to amend the complaint to try and state a
claim that would meet the pleading standards established by the Court but, if
they are unable to do so, these claims will be dismissed.The Company believes
the complaint is without merit and anticipates continuing to vigorously defend
this litigation.
36 KINROSS Gold Corporation
LITIGATION IN GREECE
In January 2003, the Stratoni lead/zinc mine located in Greece, owned by
TVX Hellas, a subsidiary of Kinross, was shut down pending the receipt of new
mining permits. Revised permits were issued on February 18, 2003, however,
operations remain suspended as Kinross works with the Greek Government and
potential investors to determine whether this mine can be reopened under a
revised ownership structure in which the Company would hold a minority interest.
If the Company could achieve this result, the Olympias and Skouries gold
projects could also undergo similar changes in ownership.The Greek Government
has undertaken initiatives to put together a viable long-term structure for the
re-opening of the Stratoni mine, which includes a group of Greek construction
companies as well as local Prefectural and Municipal ▇▇▇▇▇▇▇▇▇▇▇.▇▇ part of the
overall agreement, it would be the Company's intention to contribute 10 million
euros towards the support of the new plan. For the transitional period and until
the undertaking of the mines by the new structure, Kinross has pledged to the
Greek Government that it will maintain the operation of the water treatment
plant for the protection of the environment, thus safeguarding public health and
safety in the region. In the meantime, as a protective measure, Kinross has
commenced proceedings in Greece to place TVX Hellas, which holds all of the
Greek properties, into bankruptcy. In response, an action has been launched by
various unions against TVX Hellas, in the Greek courts, in respect of unpaid
wages since the suspension of operations in January 2003.
THE HELLENIC GOLD PROPERTIES LITIGATION
The Ontario Court (General Division) issued its judgement in connection
with the claim against TVX by three individuals (collectively the "Alpha Group")
on October 14, 1998 relating to TVX's interest in the Hellenic Gold Mining
assets in Greece. The Court rejected full ownership and monetary damages claims
but did award the Alpha Group a 12% carried interest and the right to acquire a
further 12% participating interest in the Hellenic Gold Assets.TVX filed a
notice to appeal and the Alpha Group filed a notice of cross appeal.
Subsequent to the trial decision in October, 1998, TVX received
notification of two actions commenced by 1235866 Ontario Inc. ("1235866"), the
successor to Curragh Inc., Mineral Services Limited and Curragh Limited, against
the Alpha Group, and others, in Ontario and English Courts, in relation to the
claim by the Alpha Group against TVX for an interest in the Hellenic gold mines.
On July 28, 1999 TVX entered into an agreement with 1235866 to ensure that these
new claims would not result in any additional diminution of TVX's interest in
the Hellenic gold mines. 1235866 agreed not to pursue any claim against TVX for
an interest in the Hellenic Gold Properties beyond the interest awarded to the
Alpha Group by the courts. In the event that 1235866 is successful in its claim
against the Alpha Group, 1235866 would be entitled to a 12% carried interest as
defined in the agreement and the right to acquire a 12% participating interest
upon payment of 12% of the aggregate amounts expended by TVX and its
subsidiaries in connection with the acquisition, exploration, development and
operation of the Hellenic Gold Properties up to the date of exercise. The TVX
appeal, the Alpha Group cross appeal and a motion by 1235866 were all heard on
February 17, 18 and 25, 2000. By judgement released June 1, 2000, the Court of
Appeal, while partially granting the TVX appeal, upheld the trial decision and
rejected the Alpha Group cross appeal. The Court also rejected the motion of
1235866 for a new trial. As a result,TVX holds, as constructive trustee, a 12%
carried interest and a right to acquire 12%
2003 Third Quarter Report 37
participating interest in the Hellenic Gold Properties upon the payment of costs
associated with that interest. The action by 1235866 against the Alpha Group
continues. TVX and the Alpha Group have been unable to agree on the definition
and application of the 12% carried interest and the right to acquire a 12%
participating interest in the Hellenic Gold Properties awarded to Alpha Group in
the trial judgement. Accordingly, in June 2001, a new action was commenced
between the Alpha Group and TVX to clarify the award.TVX anticipates that the
hearing with respect to such matter may be held in 2005.
RUSSIA
The Company recently received notice that local taxation authorities in
Russia are seeking a reassessment of the tax paid on the Company's Russian
operations in the approximate amount of $8.5 million, which includes penalties
and interest.The notice challenges certain deductions taken by the Company and
tax concessions relating to tax returns filed by the Company in prior years.The
Company believes its interpretation of the tax regulations is correct and has
lodged a complaint with the Regional Tax Inspection and filed claims in the
Magadan Arbitrage court refuting the findings of the city tax inspection. After
failing to receive a reply from the Regional Tax Inspection, the Company has
lodged a complaint with the Federal Ministry of Taxation. In addition, the
Company is attempting to change the jurisdiction of the action from the Magadan
Arbitration court to the Moscow arbitration court. The Company will continue to
oppose the reassessment vigorously.
CHILE
The Company's 100% owned Chilean mining company, Compania ▇▇▇▇▇▇ ▇▇▇▇▇
Guanaco ("CMKG") received a tax reassessment from the Chilean IRS.The
reassessment, in the amount of $6.7 million, disallows certain deductions
utilized by a third party. The Company believes this reassessment will be
resolved with no material adverse affect to the financial position, results of
operations or cash flows of the Company. The third party has indemnified the
Company for any amount in excess of the claim.There was no activity on this
reassessment during the third quarter.
SUMMA
In September 1992, Summa Corporation ("Summa") commenced a lawsuit against
Echo Bay Exploration Inc. and Echo Bay Management Corporation (together, the
"Subsidiaries"), indirect subsidiaries of Echo Bay, alleging improper deductions
in the calculation of royalties payable over several years of production at
▇▇▇▇▇/Cove and another mine, which is no longer in operation.The matter was
tried in the Nevada State Court in April 1997, with Summa claiming more than $13
million in damages, and, in September 1997, judgement was rendered for the
Subsidiaries.The decision was appealed by ▇▇▇▇▇ to the Supreme Court of Nevada,
which in April 2000 reversed the decision of the trial court and remanded the
case back to the trial court for "a calculation of the appropriate [royalties]
in a manner not inconsistent with this order."The case was decided by a panel
comprised of three of the seven Justices of the Supreme Court of Nevada and the
Subsidiaries petitioned that panel for a rehearing.The petition was denied by
the three-member panel on May 15, 2000 and remanded to the lower court for
consideration of other defenses and arguments put forth by the Subsidiaries. The
38 KINROSS Gold Corporation
Subsidiaries filed a petition for a hearing before the full Supreme Court and on
December 22, 2000, the Court recalled its previous decision. Both the
Subsidiaries and their counsel believe that grounds exist to modify or reverse
the decision. Echo Bay has $1.5 million accrued related to this litigation. If
the appellate reversal of the trial decision is maintained and the trial court,
on remand, were to dismiss all of the Subsidiaries' defenses, the royalty
calculation at ▇▇▇▇▇/Cove would change and additional royalties would be
payable. Neither Echo Bay, nor counsel to the Subsidiaries, believe it is
possible to quantify the precise amount of liability pursuant to a revised
royalty calculation.
HANDY AND ▇▇▇▇▇▇
On March 29, 2000, Handy & ▇▇▇▇▇▇ Refining Group, Inc., which operated a
facility used by Echo Bay for the refinement of dore bars, filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. Echo Bay filed a claim for gold
and silver accounts at this refining facility with an estimated market value of
approximately $2.8 million at the time the shipments were made. $0.6 million of
this amount was on behalf of Case, ▇▇▇▇▇▇▇ & Company, Inc. ("Case ▇▇▇▇▇▇▇), who
owned a 25 percent interest in the Round Mountain mine at the time of the
bankruptcy filing. Echo Bay fully provided for its net claim of $2.2 million as
unrecoverable. Further, in March 2002, the liquidating trustee for Handy &
▇▇▇▇▇▇ commenced a series of adversary proceedings against numerous creditors,
including two of Echo Bay's subsidiaries, alleging that certain creditors
received preferential payments in metal or otherwise. The preferential payment
claims against the Echo Bay's subsidiaries approximated $9.0 million.
In October 2003, a settlement was reached between the liquidating trustee,
Echo Bay, Homestake Mining Company, a subsidiary of ▇▇▇▇▇▇▇ Gold Corporation
("Barrick") and Case ▇▇▇▇▇▇▇. Under the terms of the settlement, the liquidating
agent will receive payments of $0.2 million from Homestake and $0.1 million from
Echo Bay. The liquidating agent agrees to release Kinross and Barrick from any
and all future claims. In addition, Echo Bay agrees to waive the $2.8 million
claim against the refinery and to pay $0.2 million to Case ▇▇▇▇▇▇▇ in settlement
of their share of the claim.
OTHER
In November 2001, two former employees of Echo Bay brought a claim against
Echo Bay pursuant to the Class Proceedings Act (British Columbia) as a result of
the temporary suspension of operations at Echo Bay's Lupin mine in the spring of
1998 and the layoff of employees at that time. On August 12, 2002, the Supreme
Court of British Columbia dismissed Echo Bay's application for a declaration
that British Columbia did not have jurisdiction in connection with this claim or
in the alternative, that the Court should decline jurisdiction. Echo Bay
appealed this decision. On April 4, 2003, the appeal was heard by the Court of
Appeal for British Columbia. On May 16, 2003, in a unanimous decision, the Court
of Appeal allowed the Company's appeal and service was set aside on the basis
that British Columbia does not have jurisdiction in connection with this claim.
In addition, the court ordered the former employees to reimburse Echo Bay for
costs associated with the appeal and the Supreme Court of British Columbia
proceedings. On August 18, 2003, counsel for the former employees filed an
application for leave to appeal to the Supreme Court of Canada. Although the
outcome cannot be predicted, the Company and their counsel believe that the
Company will prevail. Kinross is also involved in legal proceedings and claims
arising in the ordinary course of its business.The Company believes these claims
are without merit and is vigorously defending them. In the opinion of
management, the amount of ultimate liability with respect to these actions will
not materially affect the financial position, results of operations or cash
flows of the Company.
2003 Third Quarter Report 39
10. SUBSEQUENT EVENT
CROWN RESOURCES
On October 8, 2003, Kinross Gold Corporation and Crown Resources
Corporation announced that they have executed a Letter of Intent whereby Kinross
will acquire Crown and its 100%-owned Buckhorn Mountain gold deposit located in
north central Washington State, USA, approximately 67 kilometres by road from
Kinross' Kettle River gold milling facility.
Under the terms of the Letter of Intent, shareholders of Crown will receive
0.2911 shares of Kinross for each share of Crown. Assuming all of Crown's
warrants, options and convertible debentures are converted, a total of
approximately 13.1 million common shares of Kinross will be issued upon the
completion of the transaction. Before the transaction contemplated by the Letter
of Intent becomes binding, execution of definitive documentation and respective
board approvals are required.The transaction is also subject to regulatory
approvals, the successful completion of due diligence and a minimum two-thirds
approval at a special meeting of Crown shareholders. Prior to the completion of
the acquisition, Crown would dividend to its shareholders its approximate 41%
equity interest in Solitario Resources Corporation (TSX-SLR).
The Buckhorn Mountain gold deposit is a high-grade skarn gold deposit
located 240 kilometres northwest of Spokane,Washington. As at December 31, 2002,
Crown had reported total proven and probable reserves of 1.94 million tonnes
grading 13.44 grams per tonne gold and further mineralized material of 1.07
million tonnes grading 13.82 grams per tonne gold. In late 2002 and early 2003,
▇▇▇▇▇ completed a very successful 41-hole infill diamond drilling program
designed to upgrade some of the mineralized material to the proven and probable
category.
The current plan, which contemplates the development of an underground mine
rather than an open pit mine, positively addresses major environmental concerns
identified during previous permitting efforts. Kinross is confident that by
working in conjunction with Federal, State and local agencies as well as other
stakeholders, the permitting process, initiated by Crown, will be successful in
obtaining the necessary regulatory approvals to develop an underground mine in a
timely manner. In conjunction with the permitting process, Kinross will review
potential synergies between its Kettle River operation and the Buckhorn Mountain
deposit.
40 KINROSS Gold Corporation
CORPORATE INFORMATION
DIRECTORS AND OFFICERS
DIRECTORS OFFICERS CORPORATE DATA INVESTOR RELATIONS
▇▇▇▇ ▇. ▇▇▇▇▇▇ CONTACT:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ C N Independent Chairman Corporate Office
President 52nd Floor, Scotia Plaza E-mail:
Torwest Inc. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇
President and Chief Toronto, Ontario
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Executive Officer Canada M5H 3Y2 Website:
President and Chief ▇▇▇.▇▇▇▇▇▇▇.▇▇▇
Executive Officer ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Kinross Gold Corporation Executive Vice President and Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Toll free:
Chief Operating Officer Toll free: (▇▇▇) ▇▇▇-▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Executive Vice President and ▇▇▇▇ ▇. ▇▇▇▇▇ U.S. Office ▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Operating Officer ExecutiveVice President ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Director, Investor Relations
Kinross Gold Corporation Suite B Tel: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇, Nevada
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Vice President, Finance and USA 89509 ▇▇▇▇▇▇ ▇.▇▇▇▇
Retired Mining Executive Chief Financial Officer Manager, Investor Relations
Tel: (▇▇▇) ▇▇▇-▇▇▇▇ Tel: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇ ▇.▇.▇▇▇▇▇▇ A C N ▇▇▇▇▇ ▇. ▇▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Principal Vice President,Environment,
Algonquin Power Health and Safety Transfer Agent Stock Exchanges
Corporation and Registrar K - TSX
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ KGC - NYSE
▇▇▇▇ ▇. ▇▇▇▇▇▇ Vice President, Operations Computershare
Retired Mining Executive Trust Company
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ of Canada
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Vice President,Operations Toronto, Ontario
President Canada
Baymont Capital ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
Resources Inc. Vice President,Treasurer Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Toll free: ▇ ▇▇▇ ▇▇▇-▇▇▇▇
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MingayE G ▇▇▇▇▇▇▇▇ Computershare
Partner Vice President, Corporate Trust Company Inc.
▇▇▇▇▇▇▇, ▇▇▇▇▇ & Affairs Denver, Colorado
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇ G N Vice President, Human Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Executive Managing Resources and
Director and Co-head Community Relations
Scotia Capital U.S.
Bank of Nova Scotia ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Vice President, Exploration
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Audit Committee Corporate Secretary
C
Compensation Committee
E
Environmental and Health
and Safety Committee
G
Corporate Governance
Committee
N
Nominating Committee
2003 Third Quarter Report
[LOGO] KINROSS
KINROSS
GOLD CORPORATION
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