Kinross Gold - Q2 2023
August 3, 2023
Transcript
Operator (participant)
Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Kinross Gold second quarter 2023 results conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. Chris Lichtenheldt, Vice President, Investor Relations, you may begin your conference.
Chris Lichtenheldt (VP of Investor Relations)
Thank you, and good morning. With us today, we have Paul Rollinson, President and Chief Executive Officer, and from the Kinross senior leadership team, Andrea Freeborough, Claude Schimper, Ned Jalil, and Geoff Gold. For a complete discussion of the risks and uncertainties which may lead to actual results differing from estimates contained in our forward-looking information, please refer to page two of this presentation, our news release dated August 2, 2023, the MD&A for the period ended June 30, 2023, and our most recently filed AIF, all of which are available on our website. I will now turn the call over to Paul.
Paul Rollinson (President and CEO)
Thanks, Chris, and thank you all for joining us. This morning, I will provide a brief overview of our second quarter, comment on our outlook, and update you on our ESG initiatives. I will then hand the call over to Andrea Freeborough to walk through our financial performance, and then Claude Schimper and Ned Jalil to discuss our operating performance and projects. We had a great second quarter, contributing to a strong first half of the year, positioning us well to meet our full year guidance. Tasiast, Paracatu, and La Coipa delivered excellent results, representing approximately 70% of our production in the quarter, with an AISC of approximately $1,000 per ounce, driving strong free cash flow. At Paracatu and La Coipa, good performance was driven by strong grades and recoveries.
At Tasiast, the ramp-up continued during the quarter, and the operation delivered record production of nearly 160,000 ounces at a cost of sales of approximately $650 per ounce. Construction of the 24K expansion project is now complete, and we are well on our way towards sustaining higher throughput levels by year-end. Our U.S. operations delivered on plan with stronger production over the prior quarter. While costs at the U.S. assets are expected to increase in the second half of the year, the mines are performing as planned, and we continue to work towards lower cost production next year with the start-up of Manh Choh and favorable mine sequencing in Nevada.
At Manh Choh, construction activities are advancing well, and the project remains on schedule and on budget to begin contributing high-grade ore to the Fort Knox operation in the second half of next year. At Round Mountain, we remain excited about the future. We are encouraged by ongoing optimization for the Phase S open pit and expect to complete the work later this year. Work on the underground decline at Phase X is progressing well, and we are on schedule to begin definition drilling early next year. As you will see in the video link provided in our press release, we see potential for a lower cost bulk underground mining operation at Phase X with further exploration upside.
Gold Hill, our satellite deposit at Round Mountain, continues to deliver strong exploration results, further confirming our view that there is potential for additional high-margin underground mill feed at Gold Hill to supplement Phase X ore. Finally, we continue to make excellent progress at Great Bear, and the work we've done continues to support our view that this development project is expected to become a top-tier mine. We currently have 11 drills on site, and the focus has been on extending our underground resource below the initial open pit resource. We will be updating our resource statement at year-end and expect a meaningful increase to the underground resource. We are pleased to have recently signed an amended advanced exploration agreement with our partners, the Wabauskang and Lac Seul First Nation, on whose traditional territories the project is located.
This amended agreement reflects the changing nature of activities from surface exploration to underground exploration as the project advances. At Great Bear, the path is clear as we continue to focus on advancing the project through permitting and construction. Ned will elaborate on other activities at Great Bear later on the call. Year to date, we have produced over 1 million ounces, and we remain on track to achieve our production and cost guidance for the year. We strengthened our balance sheet during the quarter, and at current gold prices, we expect this trend to continue. Our quarterly dividend remains in place, which offers a competitive yield of nearly 3%. Since 2021, we have repurchased $400 million of shares, representing 8% of our shares outstanding. Overall, we view the buyback program as very successful.
However, in accordance with the plan we announced last fall, we have paused share buybacks based on the change by one of our rating agencies, moving our outlook from stable to negative. As a result, we are prioritizing debt repayment, and in Q2, we repaid $220 million of debt, and we plan to repay the remaining $100 million drawn on our revolver in the coming months. Going forward, we will continue to review our capital allocation priorities in the context of the prevailing environment. Lastly, I'd like to highlight our latest update on ESG initiatives. We recently published our third annual climate report, which details climate-related disclosures for last year. The report also outlines our progress towards meeting our climate-related goals and provides detail on our climate change strategy and our plan to reduce greenhouse gas emissions intensity going forward.
Notably, in the report, we provide an update on our Tasiast Solar project, which we expect will be delivering 34 MW of renewable energy by the end of this year. For context, 34 MW of clean energy is the equivalent to removing more than 10,000 gasoline-powered vehicles from the road for each year of the operation. We continue to be very proud of our work in this important area. With that, I will now turn the call over to Andrea.
Andrea Freeborough (EVP and CFO)
Thanks, Paul. This morning I'll discuss financial highlights from the quarter, provide an overview of our balance sheet, and comment on our guidance and outlook. As Paul noted, our second quarter performance was strong, with production and cash flow improving over the prior quarter as planned and over last year. We produced 555,000 ounces, with production benefiting from seasonality in our business, including mine sequencing at Paracatu and ramp-ups at Tasiast and La Coipa. Gold sales of 553,000 ounces were in line with production. In Q2, our average realized gold price was $1,976 per ounce, in line with the average spot price. Cost of sales of $900 per ounce was lower over the prior quarter due to higher production and particularly strong cost performance at Tasiast, Paracatu, and La Coipa.
Cost of sales at these three assets averaged $725 per ounce, driving strong operating and free cash flow. All-in sustaining costs were $1,296 per ounce in Q2, which was also lower quarter-over-quarter, primarily due to lower cost of sales. All-in sustaining costs at Tasiast, Paracatu, and La Coipa were approximately $1,000 per ounce. First half cost of sales were $941 per ounce. We remain on track to meet our full-year cost guidance of $970 per ounce. Costs are expected to increase in the second half of the year due to the accounting impact of drawing down on our inventory at Round Mountain. We expect costs to come back down next year.
In Q2, our adjusted earnings per share was $0.14, adjusted operating cash flow per share was $0.37, both improving over the prior quarter. Free cash flow for the quarter was $247 million, or $177 million, excluding working capital changes. Turning to the balance sheet, our financial position continued to improve in the second quarter and remains strong. We ended the quarter with $478 million in cash and approximately $1.9 billion of liquidity, both improving over the first quarter. Our debt declined by approximately $220 million during the quarter as we pre-repaid $200 million on the revolving credit facility, as well as $20 million on our Tasiast loan.
As Paul mentioned, we plan to prioritize repayment of the remaining $100 million on our revolver this year, further deleveraging our balance sheet. Our trailing twelve-month net debt to EBITDA ratio improved as of quarter end and is now 1.3 times, and at current gold prices, is expected to decline further through the remainder of the year. At the end of the second quarter, we announced a debt refinancing whereby we issued $500 million in senior notes due in 2033 to replace our outstanding 2024 senior notes at a comparable interest rate. Following first half results, we remain on track to meet our full-year production and cost guidance. We achieved approximately 49% of our full-year production guidance in the first half, and the second half remains on plan.
On inflation, as a reminder, we factored a 5% increase into our cost of sales guidance for this year relative to full-year costs in 2022, and we still believe this is an appropriate estimate. Far this year, oil has been trending positively. However, this continues to be offset by higher royalties as a result of stronger gold prices. Capital expenditures remain on track, and our CapEx forecast for the full year remains roughly evenly split between sustaining and non-sustaining items. In summary, we are reaffirming our full year guidance for production in the range of 2.1 million ounces, cost of sales of $970 per ounce, and AISC of $1,320 per ounce, all within a ±5% range. I'll now turn the call over to Claude to discuss our operations.
Claude Schimper (EVP and COO)
Thank you, Andrea. As Paul and Andrea highlighted, we saw strong performance from our operations in the second quarter, with higher production and lower costs compared to Q1, with all of our mines delivering on plan. Tasiast delivered another robust quarter, with production of 158,000 ounces at an impressive cost of sales of $652 an ounce, improving over the prior quarter on higher throughput, improving recoveries. Remaining tie-ins were completed in June, and commissioning continues in the class. In addition, we are making progress on the throughput ramp-up. The plant has achieved throughput of 24,000 tons per day for sustained periods of time, and have also reached as high as 28,000 tons per day on several occasions. This demonstrating the operations' ability to achieve the expanded throughput.
Our focus is now on sustaining this higher throughput, which we expect to achieve by the end of the year. At the Tasiast Solar Project, civil work is essentially complete and mechanical works are well advanced, with a focus on the installation of the photovoltaic modules. We have now installed 65,000 out of the total 80,000 panels planned. Electrical work is underway, and planning for commissioning has begun. This project is on schedule for the completion by the end of the year. At La Coipa, production is tracking well against the full-year plan. Continued outperformance on grade and recovery are driving production, while plant optimization continues through the second half of the year. La Coipa continues to contribute robust free cash flow and was the lowest cost, highest margin mine in our portfolio in the second quarter.
Following first half production at La Coipa, we remain on track to meet our full year production guidance in the range of 240,000 ounces. At Paracatu, increases in grade and recovery led to an improvement in the production and costs in Q2. Q3 production is expected to be the strongest for the year, driven by increased mining rates in the higher grade, deeper areas in the southwest of the pit. Paracatu remains on track to achieve its full year production guidance in the range of 580,000 ounces. Now moving to the U.S. operations. Production and costs improved across our operations in Q2, and we are on track with our full year guidance.
As discussed earlier, costs of these assets are higher relative to the rest of the portfolio and are expected to increase in the second half of the year before declining next year. Beginning with Fort Knox, Q2 production was higher quarter-over-quarter due to planned higher processing grades. We saw strong performance from the mill and a benefit from some additional ounces from unplanned ore material encountered in the Phase 10 stripping. Work advanced well on the Fort Knox mill modifications to accommodate ore from the Manh Choh project, and we are on track to begin processing high-grade ore from Manh Choh in the second half of next year. At Bald Mountain, production improved over the prior quarter as higher mining rates were realized in Q2, following the weather challenges in Q1, leading to higher leach stacking rates.
At Round Mountain, we achieved our planned production for the quarter, which was relatively flat compared to Q1. As Andrea mentioned, cost of sales at Round Mountain are expected to increase in the second half of the year before declining next year, as the Phase W investment period wraps up and mining shifts to the lower strip areas with higher grades. With that, I will now turn the call over to Ned.
Ned Jalil (Senior VP)
Thanks, Claude. I'll start by elaborating on Round Mountain, then comment on our Manh Choh and Curlew projects, before finishing with an update on Great Bear. While Round Mountain is currently in a period of elevated costs, I want to take a minute to update you on why we remain excited about the future of Round Mountain. Following a period of investment in the new phases, Round Mountain has the potential to be a significant producer through the 2030s, with higher margin and strong returns on invested capital. Here's how we currently envision the future of Round Mountain. We are currently mining through the remaining portions of open pit Phase W2, which is expected to maintain our current production level through 2024 and provide a mill and leach tail into 2025 and early 2026.
After mining in Phase W2, we are studying the option to transition to Phase S, which could sustain open pit production through the early 2030s. Concurrent with open pit mining at Phase S, we could also potentially begin underground production from Phase X and Gold Hill later in the decade. We are pleased with the ongoing work in the following areas. At Phase S, ongoing optimization work is showing encouraging results with lower capital intensity and lower strip, driving improved economics compared with our prior view. At Phase X, construction of underground exploration deep decline is progressing well, with 350 m developed thus far.
The deep decline is on track to facilitate the start of definition drilling early next year, with production from Phase X envisioned to begin in the late 2026. The future of Round Mountain continues to take shape, we look forward to sharing more positive developments over the coming quarters. Coming back to Gold Hill, which is located 70 km away from the Round Mountain pit, we continue to see strong potential for a higher-grade underground mine supplementing production from Phase X. Drilling this year has confirmed an 800-meter west strike extension with multiple high-grade intercepts. During the quarter, we had our best result to date, hitting more than 40 grams per tonne over approximately 2 meters. With continued exploration success at Gold Hill, we look forward to ultimately bringing this high-grade satellite deposit into our broader plans at Round Mountain.
Moving to Manh Choh, project activities remain on schedule and on budget, and we're pleased to report the mine operating permits were received during the second quarter. Contracting and procurement activities are now complete, and construction and mining activities are ramping up. Construction on the mill modifications at Fort Knox to process the Manh Choh ore has commenced, and the Kinross operations team is now fully staffed, while onboarding of key business partners to support the mining and ore transport is ongoing. We are excited about bringing this high-grade margin project into production next year. At Curlew in Washington State, results from ongoing underground exploration continue to confirm vein extensions and continuity with high-priority target areas. Exploration drilling will continue throughout the third quarter, with the aim to build on the resource through proximal growth.
Notably, yesterday's release includes the best intercept from Curlew in the past 10 years, with Hole 1148 intersecting 41 grams per tons over 2 meters. We remain excited about this project and look forward to continuing to advance our work over the coming quarters. Moving to the update on Great Bear, in the second quarter, we continued to make excellent progress on several fronts. Starting with exploration, there are currently 11 drill rigs operating on site, and in Q2, we drilled approximately 56,000 meters, bringing the year-to-date total to approximately 96,000 meters. Exploration is focused in the area, 500 meters to 1 km below surface at the LT fault zone. Drilling efficiency since introducing directional drilling has been enhanced.
This method decreases the amount of drilling required to reach these targets, improving productivity and cost per meter drilled, while also allowing for more efficient and precise targeting. With a current focus on resource expansion, recent results are encouraging as they continue to confirm high-grade mineralization at depth, including hole BR-805, which intercepted 6.7 meters at a grade of 19.3 grams per tonne at a vertical depth of 730 meters. With the success of our drilling campaign so far this year, we have seen meaningful growth in the underground resource. Outside of drilling, other activities are also advancing well. Feasibility level engineering for the AEX decline infrastructure is approximately 70% complete, including geophysics and soils geotechnical drilling, and the procurement process for long lead items such as the camp, power infrastructure, and water treatment plants have commenced.
Three engineering firms with significant experience in Ontario have been engaged to support our strong in-house owners team. Engineering and field test work campaigns for the main project continue to advance well, with results of this work to be included in our Preliminary Economic Assessment next year. Permitting activities are also progressing well, including initial reviews by the Impact Assessment Agency of Canada of the draft initial project description. I will now turn it back to Paul.
Paul Rollinson (President and CEO)
Thank you, Ned. Before concluding, I want to acknowledge and thank Ned for his significant contribution to Kinross over the years. Thank you, Ned, and all the best in your next chapter. In closing, we are meeting our goals and have delivered a strong Q2 and first half and are on track with our plans. We are excited about our outlook. We have a strong production profile. We are generating significant cash flow. We continue to return capital to our shareholders through an attractive dividend. We have an exciting pipeline of exploration and development opportunities. Finally, we are very proud of our commitment to responsible mining that has made us a leader in ESG performance within the industry. With that, operator, I'd now like to open up the line for questions.
Operator (participant)
At this time, I would like to remind everyone, in order to ask a question, press star, then one on your telephone keypad. Your first question comes from the line of Josh Wolfson from RBC Capital Markets. Your line is open.
Josh Wolfson (Equity Research Analyst)
Yeah, thanks very much. With the disclosure of the Great Bear underground resource upside, I'm just wondering, and it may be a bit early, is there any read through here to potential design changes, or is this more so confirming some of the mine life extension that was, you know, signaled with the, with the original, you know, study?
Ned Jalil (Senior VP)
Hi, good morning. This is Ned Jalil. It's actually the, the latter, so it is an extension of the resource. We're growing the resource in the underground, and you'll, you'll see the update with the year-end resources. Pretty exciting. Fundamentally, the design as, as we've described it earlier, an open pit with an underground mine, and starting with, with, with a tonnage coming mainly from the open pit, a little bit from the underground, then transitioning to a full 100% underground mine that take us through the decade as, as the resource grows. What's exciting for us lately is that we're actually seeing the grade increases by going forward. Yeah, it's very exciting, and look forward to our releases in the coming quarters and, and, end of year resource.
Josh Wolfson (Equity Research Analyst)
Thanks. On the outlook for Tasiast, the grade in the second quarter continued to be pretty strong. You know, what is the potential for that grade to continue even as throughput ramps up in the second half? Then sort of as a follow-up to that, the prior mine site had outlined a larger drop-off in upcoming 3 years for the existing guidance. Is there any opportunity to sort of, you know, rethink sequencing that with some of the performance we've seen this year?
Paul Rollinson (President and CEO)
Josh, it's Paul, yeah. We have seen the obviously, the grade in the second quarter was better. We are balancing the Tasiast mining is slightly ahead of plan, so we're able to increase our stockpile slightly, and with that, we're able to blend a little bit better and balance the grade expectations. We do see it still strong in Q3, but dropping off in Q4. As we go into 2024, we're going back into you know, the mine plan, and it will go down a little bit more.
Josh Wolfson (Equity Research Analyst)
Okay, thank you very much.
Operator (participant)
Your next question comes from the line of Fahad Tariq from Credit Suisse. Your line is open.
Fahad Tariq (VP of Equity Research)
Hi, good morning. Thanks for taking my question. Just going back to some of the comments around debt reduction, is there a particular leverage target that you're looking at? I know the buybacks, I, I think the parameter was 1.7x net debt to EBITDA. I believe on my math, you're already below that, or slightly below that. I'm just curious on how you're thinking about, you know, maybe a targeted leverage ratio.
Andrea Freeborough (EVP and CFO)
Sure. It's Andrea here, Fahad. The 1.7 that, that we talked about when, when we launched the enhanced buyback was just where our net debt to EBITDA was at that point in time. That was just part of the design of the plan, which was always meant to protect the balance sheet and our investment grade rating. We are below that now, so we're, you know, just around or just slightly below 1.3 times at the end of the second quarter. We were 1.65 at the end of Q1, so the improvement in Q2 was sort of half related to debt reduction and half higher EBITDA.
You know, our priority going forward, as, as Paul and I both said in our, in our remarks, is to, first of all, to repay the remaining $100 million we have drawn on the credit facility. That's in addition to the $200 million we repaid during the quarter. Then beyond that, we would, you know, target, starting to, starting to take down the term loan for the billion-dollar term loan that, that we took out to finance the cash portion of the Great Bear acquisition. That's due in early 2025, but it has flexible repayment terms, so we can start repaying that at any point in time. In terms of target leverage ratio, yeah, we would like to continue to, to reduce, and, you know, below one would be, would be great.
Depending on gold price, if we were, you know, at or above $2,000 gold, we, we'd expect to get there sort of towards the end of the year. We'll see where we get to with gold price and as we go through the year here.
Fahad Tariq (VP of Equity Research)
In speaking with the rating agencies, I don't know if you have, but have they communicated, like what it would take to get back to a stable operational outlook?
Andrea Freeborough (EVP and CFO)
I guess may- maybe it's helpful just to comment on how... I mean, it's S&P that moved us to negative outlook and how they look at it. It's a pretty strict definition that, you know, drives to the negative outlook. I think it's a 30% chance that we would be downgraded in that lower gold price scenario. They were using a $1,400 long-term scenario. You know, we don't agree with that negative outlook. In a lower gold price scenario, there's levers that we would pull to protect the balance sheet and protect the rating.
You know, it is what it is in terms of their rating, and so I expect the actions we're taking now in terms of debt repayment, will, you know, will get that, that outlook reversed, all else being equal. In terms of when they might review again, it's typically at least quarters. I would expect that'll be sometime next year, either after year-end or after Q1.
Fahad Tariq (VP of Equity Research)
Okay, that, that's super clear. Maybe just switching gears quickly to Paracatu. Looks like the grades are coming in pretty decent, and it sounds like it's gonna be even better in Q3 as you get kind of deeper into the pit. Just curious on, when you say higher grades in the second half, are we thinking like something close to what was achieved in Q4 of last year, like 0.5 grams per ton? Is that kind of in the right range, or just trying to get some color on modeling Paracatu in the second half.
Claude Schimper (EVP and COO)
Yeah, I think the 0.5 would be a little bit high. As you know, the average for the first 0.41, and so we would anticipate this next quarter to be slightly higher, but then dropping back down in Q4. We're a little bit ahead of the sequence this year compared to last year. We do see a drop off in Q4. Then next year, for the whole year, the grades drop down quite a bit. Paracatu drops down quite a bit in its life mine plan, and then picking up the following year as we do the additional stripping in 2024. Pick up again in 2025.
Fahad Tariq (VP of Equity Research)
Okay, great. Thank you very much.
Operator (participant)
Your next question comes from the line of Anita Soni from CIBC World Markets. Your line is open.
Anita Soni (Equity Research Analyst)
Hi, I've got a lot of sort of fine-tune modeling questions, but first I wanted to say congratulations on the good quarter, and it's good to see you guys back at getting within your guidance range for the year. On Paracatu, just to follow up, next year's strip, is that you said it's slightly higher, or like, is that like a one turn, or is it, is it materially higher than it is this year?
Paul Rollinson (President and CEO)
For Paracatu?
Claude Schimper (EVP and COO)
Yeah, for Paracatu, yes.
It's a little bit higher next year, and the grade is also a little bit lower next year, because we're in Phase 11 and a couple of other phases within the pit. That's why the ounce production for Paracatu next year comes off quite a bit relative to this year.
Anita Soni (Equity Research Analyst)
Okay, will that impact-
Claude Schimper (EVP and COO)
Just for the year.
Anita Soni (Equity Research Analyst)
Yeah, just for the year. I think, right now you're, what, kind of like 1.3 in this quarter. I'm, I'm not-- this quarter, I guess, is a little bit lower. It's one of the questions I wanted to ask, but, were you a little bit lower this quarter on the strip ratio in, in Paracatu?
Claude Schimper (EVP and COO)
I'll have to get back to you though, on that one, Anita.
Anita Soni (Equity Research Analyst)
Yeah.
Claude Schimper (EVP and COO)
Because we look at it relative to the grade.
Anita Soni (Equity Research Analyst)
All right.
Claude Schimper (EVP and COO)
We're on track.
Anita Soni (Equity Research Analyst)
So-
Claude Schimper (EVP and COO)
Stripping and production ratio, Paracatu's on track for this year.
Anita Soni (Equity Research Analyst)
All right.
Ned Jalil (Senior VP)
Claude, maybe I can jump in, Anita. Anita, this is Ned. Maybe I can help you-
Anita Soni (Equity Research Analyst)
Yeah
Ned Jalil (Senior VP)
With the, with the life of modeling. As you know, Paracatu has multiple regions. There's the north region, which is lower grade, almost no strip, and, and the south side, which is the deeper part, higher grade and, and higher strip. What Claude is, is alluding to is that in 2024, we're gonna be mining more in the north area of the pit as we strip Phase 13B and Phase 15. The grade in 2024 will be slightly lower, but all in, all in, we're, we're north of 500,000 ounces at Paracatu, so that, that's in, in play. You know, potentially in 2025, we get back to similar, maybe a little bit lighter than this year, but about 550, 550,000 ounces.
I hope that helps.
Anita Soni (Equity Research Analyst)
That does. Yeah. Thank you. Okay, and then just moving on to Bald and Round. I think, I guess, I'm just trying to understand some of the m- movements in terms of, you said that cost would go higher in the back half of the year, which I get. Is it, is it related to, is it related to the strip ratio that, that's happening there? I just noticed, like, things like the, you know, on Round Mountain, the processing cost came down. Could you talk about that and what's driving that, and will that be sustained?
Ned Jalil (Senior VP)
I would just need a pie, hand off to Andrea, it's more accounting than operational. It's more to do with heap leach accounting, which is something we might want to take offline, I'll hand over to Andrea to give a sense.
Anita Soni (Equity Research Analyst)
Yeah, I, I guess at a high level.
Well, I was gonna say, I think I had to, like, take off a significant amount on the inventory to, to make it balance. That's what I was driving at, but the, and, and when will that reverse? I think it was like $60 million to, to make the, the unit cost balance to the cash cost.
Andrea Freeborough (EVP and CFO)
Yeah, I mean, we, we've, we've always said we expected costs at Round to be, you know, to stay elevated this year. They were down a bit in the second quarter. We do expect them to be higher in the second half of the year. As Paul mentioned, this is really just related to our heap leach accounting, and it kind of peaks in the second half of this year. We expect the cost to, to come back down, in 2024.
Anita Soni (Equity Research Analyst)
All right. All that will reverse this year, right? Nothing in 2024?
Paul Rollinson (President and CEO)
Yeah. I think this year it's accounting, it's not really representative of cash flow. It's that inventory accounting effect. Next year we'll be moving into a different portion of the pit with, with less strip and better grades.
Andrea Freeborough (EVP and CFO)
Yeah, I think, you know, we may still have this inventory impact next year, but we don't expect it to be as significant as, as in the second half of this year. This is also kind of gold price dependent as well.
Anita Soni (Equity Research Analyst)
Okay. All right.
Andrea Freeborough (EVP and CFO)
We can, we can take you through it in detail offline, if that's helpful, Anita.
Anita Soni (Equity Research Analyst)
Yeah, I think so. Yeah, thanks, thanks, and congrats on a good quarter.
Operator (participant)
Your next question comes from the line of Carey MacRury from Canaccord Genuity. Your line is open.
Carey MacRury (Metals and Mining Research Analyst)
Hey, good morning, everyone. Just a question on the Tasiast ramp up. You know, the planted just over 18,000 tons a day, the project's complete, I know you're ramping it up, but how was throughput in July, is there any guidance you can give on sort of what we should expect for Q3?
Claude Schimper (EVP and COO)
Yeah, we really got the throughput in July right. We did have, as we mentioned, in June and July, we did mention that we had a shutdown planned for the first part of the June. We delayed that a little bit into the June-July crossover. We had some days there that weren't working, to, you know, tie in some other things and some piping. Once we got going, then that's where we hit those record tonnages for Tasiast in a day. What we're now doing is focusing on, as we commission the back end of the plant, to make sure that we don't stress the system too much and set ourselves up for a solid back end of the year relative to the plan.
Carey MacRury (Metals and Mining Research Analyst)
Should we be assuming something like 20,000 tons a day in Q3, or is that too much?
Claude Schimper (EVP and COO)
Yeah, we did say in the first quarter, we said we would average between 20 and 21. We're now looking closer to 21,000 for the whole year, so things are looking solid at best.
Carey MacRury (Metals and Mining Research Analyst)
Okay, great. Then maybe on the solar plant, can you quantify what sort of cost ground savings you'd expect to see there?
Claude Schimper (EVP and COO)
Yeah, let's. Yeah, I mean, we'll have to get back to you on that, that particular number, exactly on the cost per ounce. We are looking for considerable savings on our, on our fuel costs, obviously, as we, we put the plant into operation and sort of the, the numbers just come through as $15 an ounce. We're expecting just on power and savings a lot.
Carey MacRury (Metals and Mining Research Analyst)
Great. Thank you.
Operator (participant)
Your next question comes from a line of Tanya Jakusconek from Scotiabank. Your line is open.
Tanya Jakusconek (Equity Research Analyst)
Yes, good morning, everyone. Thank you so much for taking my questions. I have two. First is on the reserve and resources, and second is just on cost. Can I just circle back to the resources? Just maybe, Ned, can you just remind me the underground at Great Bear, when you reported the resource, I think it was underground of about 1.3 million, was that, in the, you know, between, you know, just about the 500 meter level? I'm just looking at your cross-section on page 23, and I'm just trying to understand for the resources that you're gonna report at year-end 2023 for Great Bear, is that gonna be between the 500 meter level and the 1,000-meter level?
Paul Rollinson (President and CEO)
Hi, Tanya. Good morning. We got your name right this time, right?
Tanya Jakusconek (Equity Research Analyst)
Oh, right, it's me!
Paul Rollinson (President and CEO)
Yeah, thanks for your question. That's a great question. I'm just looking at the numbers here. What we reported for the underground was approximately 1.7 million ounces. You got it right. Like, that's down to the 500 meter mark, based on what we got from drilling. Like I mentioned in the presentation, our focus now is from 500 meters below the, you know, what we've announced, down to 1 km. We're very focused, and that directional drilling is amazing. It's saving us a lot of time, so we're bringing in a lot of potential ounces here.
What we see is that with the year-end resource statement, what I see, Tanya, is a material increase in the underground resource. You know, be watching for that number that will come by year-end.
Tanya Jakusconek (Equity Research Analyst)
would it be able to give us some sort of guidance on what we should expect? Like we should-
Paul Rollinson (President and CEO)
We do have
Tanya Jakusconek (Equity Research Analyst)
Go ahead.
Ned Jalil (Senior VP)
Yeah, look, we well, you know, we, we've drilled it out. We've, we know it's there, but we haven't put a technical report around it yet, so it's, you know, ranging, I would say, Paul, it's, it's ranging, you know, there is, again, like what Paul said, there is no technical report, but, based on our knowledge- Our vision. I, our, our vision, based on what I look at from my experience, based on what I look at from the drilling, and, and when I see what's on the screen, it, it's, it's potentially, you know, what I saw now is, is looking like 500,000 increase in, approximately in, in the underground resource and, and targeting continuous growth into year-end.
Tanya Jakusconek (Equity Research Analyst)
Okay, now that's helpful.
Paul Rollinson (President and CEO)
I think as the other point that Ned made earlier is, we are seeing generally higher grades. Part of that is how we design the open pit and how it pulls.
And, and dives for grade at depth in the bottom of the pit. We're sort of seeing a rebalancing as we focus on the underground, which is dragging the average grade up as well.
Tanya Jakusconek (Equity Research Analyst)
Okay. This, this is all good news. Maybe just on, on your own, you know, thinking as it, overall for, for the company, can I assume that at year-end, and when I look at your resource category, can I assume that, you know, the exploration success you're having at Great Bear, the exploration success at Gold Hill and at Curlew, can I expect those three projects to have up, you know, increases in resources?
Paul Rollinson (President and CEO)
Yeah, for sure, Tanya. There, there will be increases in resources. I'm not sure if we're gonna catch it up in a block model and an update for Gold Hill by this year-end. For sure, the drilling is there and, you know, we bring it in, and we look at what potentially it could be. The other two assets, Great Bear and Curlew, we're looking at an increase in resource. Yes.
Tanya Jakusconek (Equity Research Analyst)
Okay.
Paul Rollinson (President and CEO)
We, we won't have Round Mountain and Gold Hill in an underground resource yet, but we're definitely seeing the drilling, and in the fullness of time, that will pull in.
Tanya Jakusconek (Equity Research Analyst)
Maybe that's a year-end, 2024. Just maybe, just if I could ask about just the overall reserves. I know it's just half a year has gone by, but, you know, any guidance on how you're seeing your drilling at your current mine sites to see whether reserves can be replaced at those assets?
Paul Rollinson (President and CEO)
You know, it's, it's our. As you know, Tanya, like we, we bring, we bring ounces from not being inferred, or we call it category, Category four in, in internally in Kinross, and we bring that into inferred, and then we drill the inferred and bring that into indicated and into measured. That is ongoing at all, all our assets, right? Our focus, mainly when it comes to resource, is growing Great Bear, as, as you know. Again, then after that is growing Curlew. With the underground decline at Round Mountain, we really wanna drill from depth. As, as you know, we're already progressed. We're underground now, but take us a little bit of time to get there and set up at the right angles to drill Phase X from underground.
That will bring in more resources, and then we continue to drill it, for example, as an example, in, in Fort Knox and bring some of the resources into, into reserves at, at Fort Knox and, and other operating sites that we have.
Tanya Jakusconek (Equity Research Analyst)
Okay. I should take that it's a bit too early for you to comment on whether reserve replacement is occurring?
Paul Rollinson (President and CEO)
Yes.
Tanya Jakusconek (Equity Research Analyst)
Okay. We'll ask next quarter. If I could just ask a final question, you know, Andrea touched a little bit on this, just the inflationary pressures in the cost structure. You've assumed 5% in, of inflation in 2024 costs over 2022. You mentioned that you are seeing, lower, you know, oil prices, diesel prices, you know, positively helping your costs offset by royalties. Can I just touch on the other components? Are you seeing any, you know, relief or any lower pricing in other consumables, labor, anything else that, you know, relative to what you've budgeted? You may not be experiencing it now because you may have inventory, you know, are you seeing any relief in other portions of your cost structure?
Andrea Freeborough (EVP and CFO)
We are-- I mean, we are seeing some relief in certain areas, but there's generally been offsets for us going the other way. You know, overall, we're not expecting to see, you know, the cost-- We're not expecting to see anything different than what we factored into the guidance, which was the 5% increase overall. We've, you know, we've seen some increases in maintenance, and, and, you know, labor costs just year-over-year. We don't expect labor costs to, to go down, even as inflation, you know, decreases or, or reverses. We've also got some higher power costs in Nevada than we've had in the past. Overall, we're not, we're not seeing a net, you know, decrease because of, because of, you know, inflation reversing.
It's sort of leveling out with some, some puts and takes here. Claude, I don't know.
Claude Schimper (EVP and COO)
Yeah, I'll add that, cyanide, as an example, is off its peak pricing, and there's a bit of competition in the market in that area. We do see steel being better at some of the consumables for the plant. Offset one is ammonia, and it's really a function of the conflict in Ukraine that's causing us supply chain issues with our explosive contractors, and that's driving price there. There's puts and takes. The power in Nevada, as Andrea mentioned, is that the price is set 12 months. So we're really paying in June 2023 for the power price of June 2022, when it was at its peak.
As we go more with those things, we do expect some relief, but we're watching it very closely, and we think our 5% target was a good one to maintain the line.
Tanya Jakusconek (Equity Research Analyst)
Yeah, thanks, Claude. I appreciate that because, you know, you know, in general, we've, we've found that most companies between three to six months of, of inventory and contracts and other... you know, should we, you know, get through these, like, as yourself have mentioned on the power, which was priced on June 2022, once we get through that, you know, hopefully we will see some relief in costs in 2024 as we get through, you know, i.e., this power and/or maybe other inventories at site that are, are, you know, booked at higher prices. I was just wondering, you know, is it safe to look at when Paul mentions, you know, costs declining, you know, into 2024, is that just due to operational grade and, and other, or can we see some relief in inflationary pressures?
Claude Schimper (EVP and COO)
Yeah, we certainly expect to see some, and you're absolutely correct that some of our inventory that we have on site now was purchased at higher prices. As we pull them off, we're paying more for them now. Next year, we, we will see the opposite effect, where we're paying less for some of the items that we're bringing into supply as we speak. We do see some potential relief.
Andrea Freeborough (EVP and CFO)
Your- the first part of your comment, Tanya, is also true in terms of the operational impacts. We expect costs to come down in the U.S. in 2024, as Manh Choh comes on in, in Alaska, and then also in Nevada, as I noted earlier.
Tanya Jakusconek (Equity Research Analyst)
Okay. All right, thank you so much for taking my questions. I'll leave it to someone else to ask.
Paul Rollinson (President and CEO)
Thank you.
Claude Schimper (EVP and COO)
Thank you.
Operator (participant)
Again, if you'd like to ask a question, it's star one in your telephone keypad. Your next question comes from the line of Mike Parkin from National Bank. Your line is open.
Mike Parkin (Managing Director and Head of Mining Research)
Thanks for taking my questions, and nice quarter. Just a bit of a follow-up on Tanya's question. With some of your inputs improving, mainly like diesel, are you seeing an opportunity to add additional hedges on things where you're seeing potential for wins and locking in good prices?
Andrea Freeborough (EVP and CFO)
I mean, we typically hedge, you know, somewhere in the 50%-60% of, well, currencies and WTI, you know, within a year. We do add hedges sort of periodically when we see opportunities, you know, in the market, and then, you know, to lower amounts for a couple of years out. You know, our guidance for this year factored in the hedges that we had in place, and, you know, we're still on track with that guidance. We're hedged for this year about 60% of our exposure is at an average rate of $56 a bbl.
You know, going out in 2024, we're hedged, you know, between 35% and 40% at, at a bit of a higher cost, closer to $70, and then we've got, you know, a small amount of hedges out in 2025. You know, we sort of roll that forward as we go through when we see opportunities.
Mike Parkin (Managing Director and Head of Mining Research)
Okay, thanks very much. That's it for me.
Operator (participant)
There are no further questions at this time. Mr. Paul Rollinson, I will turn the call back over to you for some final closing remarks.
Paul Rollinson (President and CEO)
Well, thank you, Rob, operator. Thanks everyone for joining us this morning. We, we look forward to catching up with you in person in the coming weeks and months. Thanks.
Operator (participant)
This concludes today's conference call. Thank you for your participation. You may now disconnect.