Kinross Gold - Q3 2024

Transcript

Operator (participant)

Welcome to the Kinross Gold Third Quarter 2024 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. Thank you. I'd now like to turn the call over to David Schraeder, Senior Vice President of Kinross Gold. You may begin.

David Shaver (VP of Investor Relations)

Thank you and good morning. With us today, we have Paul Rollinson, CEO, and from the Kinross Senior Leadership Team, Andrea Freeborough, Claude Schimper, Will Dunford, 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 November 5th, 2024, the MD&A for the period ended September 30th, 2024, 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 (CEO)

Thanks, David, and thank you all for joining us. This morning, I will provide an overview of what was another strong quarter for us, discuss high-level updates on our operations and projects, and confirm our outlook. I'll then hand the call over to Andrea, Claude, and Will to provide more detail. Q3 was another excellent quarter for us, building on our strong performance in the first half of the year. Our portfolio of mines continues to perform very well. As of Q3, we had produced just over three quarters of our full-year production, with costs tracking in line with our guidance range. Our ability to hold costs in this rising gold price environment continues to benefit our margins. In Q3, we grew our operating margins by 14% over the prior quarter, compared to a 6% increase in the gold price.

As a result, we generated record quarterly free cash flow of $415 million, an increase of approximately 20% compared to the prior quarter. For the first nine months, free cash flow was over $900 million. We have continued to allocate excess free cash towards debt repayment and have now repaid $650 million out of the $1 billion term loan. Looking ahead, we are in a strong position to make further repayments to the term loan before year-end. With respect to operations, our production in the third quarter was strong, delivering 564,000 ounces at a cost of sales of under $1,000 per ounce. Our two largest assets, Tasiast and Paracatu, both performed well, with production increasing at both sites over the prior quarter. Tasiast had another excellent quarter, delivering exceptional free cash flow from high-margin production.

Paracatu also had a standout quarter with higher production and cash flow over the prior quarter. At La Coipa, we remain on track to deliver our production guidance. At our U.S. operations, production was on plan and higher over the prior quarter as initial production from higher-grade Manh Choh commenced in early July. Moving to updates on our project activities, we continue to make good progress across the portfolio in the third quarter, including the addition of two senior executives who bring notable large-scale project construction experience in Ontario and Chile. These additions come at an important time as we focus on our project development priorities at Great Bear and Lobo Marte. At Lobo Marte, we see an excellent long-term potential for another long-life, low-cost asset with meaningful production.

At Round Mountain, we continue to advance Phase X, with drilling demonstrating exciting grades and widths, which Will is going to speak to you later. With respect to Great Bear, we continue to make excellent progress. As discussed during our PEA presentation in September, we have illustrated the top-tier potential of this asset. The PEA outlines significant annual production of approximately 500,000 ounces and robust cash flow with an impressive all-in sustaining cost of approximately $800 per ounce. The study outlined strong base case economics, and at current spot prices, the project generates an impressive NPV and IRR with a modest initial project capital requirement. As we indicated, the PEA represents only a point-in-time estimate, and we continue to see geologic potential to support a multi-decade mine life. For the Great Bear AEX program, permitting and detailed engineering continue to advance.

We recently reached an important AEX permitting milestone with the submission of our final closure plan to the Ontario Ministry of Mines. We expect approval of the closure plan shortly, allowing for commencement of early works construction. Regarding permitting for the main project, we continue to work with the Impact Assessment Agency of Canada on the Impact Statement, which we plan to file next year. In addition to the projects I just touched on, our team also continues to advance our study work at other opportunities, and we look forward to providing more updates on this work in 2025. Moving to our outlook, with strong year-to-date performance, we are well-positioned to meet our full-year production and cost guidance. Our continued focus on operational performance, strong grades at multiple assets, and rigorous cost discipline are driving record margins and free cash flow.

In addition, we are also advancing exploration to further support the future of our business. With that, I will now turn the call over to Andrea.

Andrea Freeborough (CFO)

Thanks, Paul. This morning, I will discuss our financial highlights from the quarter, provide an overview of our balance sheet, and comment on our guidance. Our third quarter performance was strong, with production, cost, and cash flow all improving over the prior quarter. We produced 564,000 ounces, with sales of 551,000 ounces, and remain on track for full-year production of 2.1 million ounces. The cost of sales was $980 per ounce, improving from $1,029 per ounce in the prior quarter. With an average realized gold price of $2,477 per ounce, we delivered strong margins of approximately $1,500 per ounce. Margins improved from approximately $1,300 per ounce in the prior quarter, and as Paul noted, this improvement outpaced the increase in the average realized gold price. All-in Sustaining Cost was $1,350 per ounce and was lower over the prior quarter, primarily on higher gold sales.

For the first nine months, cost of sales was $997 per ounce, and we are on track for our guidance of $1,020 per ounce for the year. In Q3, our adjusted earnings were $0.24 per share, and adjusted operating cash flow was $625 million, both improving over the prior quarter. Capital expenditures were $276 million in the third quarter and $772 million in the first nine months. In Q3, we generated $415 million of attributable free cash flow, or $350 million excluding positive working capital changes. Year-to-date, we have generated an impressive free cash flow of $906 million. Turning to the balance sheet, our financial position continued to strengthen in the third quarter. After repaying $200 million against the term loan in Q2, we repaid an additional $350 million in the third quarter and then made another $100 million payment last week.

In total, we have repaid $650 million this year, leaving $350 million outstanding. Looking forward, as Paul mentioned, we expect to continue to make payments against the balance before the end of the year. Over the last 18 months, we have reduced our net debt by approximately $1 billion, and our net debt to EBITDA from 1.7 times to 0.5 times as of the end of Q3. With respect to guidance, we remain firmly on track for all of our key metrics. I'll now turn the call over to Claude to discuss our operations.

Claude Schimper (COO)

Thank you, Andrea. Starting with our most important value, safety, I'm pleased to say that our Global Safety Excellence Program, which was launched in 2023, has now been completed by over 70% of the workforce, including both employees and business partners. Under the spirit of continuous improvement and building on our successful track record, this quarter we finalized our health and safety brand called SafeGround, which represents the importance that Kinross places not only on physical safety but also psychological safety and respectful workplaces by reinforcing the importance of creating a culture in which everybody feels they are on safe ground to speak of. Moving on to our operating performance. As Paul indicated, our operations performed well in Q3. Tasiast delivered production of 162,000 ounces at a cost of sales of $688 per ounce, in line with the prior quarter.

Production benefits from stable mill performance with throughput increasing to a new record. Tasiast was once again our lowest-cost asset, driving significant free cash flow. With slightly lower grades and maintenance planned in the fourth quarter, Tasiast remains on track to meet its full-year production guidance of 610,000 ounces at a cost of sales of $670 per ounce. At Paracatu, production of 146,000 ounces at a cost of sales of $1,006 per ounce improved over the prior quarter, driven by stronger grades and recoveries. As planned, mine sequencing has started to transition into the higher-grade portions of the pit, which is expected to support higher production next year. Paracatu remains on track to meet its 2024 production guidance of 510,000 ounces at a cost of sales of $1,080 per ounce. At La Coipa, Q3 production was 51,000 ounces at a cost of sales of $1,074 per ounce.

Throughput at La Coipa is being managed while mill optimization initiatives are being implemented. Production remains on track for a full-year target of 250,000 ounces. Moving to our U.S. operations, production of 205,000 ounces was driven by a strong contribution from our operations in Alaska. Our U.S. sites remain on track to achieve full-year guidance range of 730,000 ounces at a cost of sales of $1,350 per ounce. In Alaska, production of 120,000 ounces was higher compared to the prior quarter on record mill grade and recovery, as production commenced from the higher grade Manh Choh during the quarter. Construction and commissioning of the Fort Knox mill modifications were completed in Q3, with the project now fully transferred to the operations team and is performing as planned. Cost of sales of $973 per ounce was lower over the prior quarter, primarily due to the higher production from Manh Choh.

At Bald Mountain, we produced 43,000 ounces at a cost of sales of $1,326 per ounce. At Round Mountain, production of 42,000 ounces was lower over the prior quarter due to fewer ounces stacked and recovered from the heap leach pads, as per our planned mining sequence. Cost of sales of $1,540 per ounce was in line with the prior quarter. At Phase S, mining remains on track, and construction of the heap leach pad expansion was completed on schedule in Q3. Phase S production is expected to begin in the second half of next year. With that, I'll now pass the call over to William to discuss our projects.

Will Dunford (VP Projects)

Thanks, Claude. Moving to updates on our projects. At Round Mountain, Phase X, development of the exploration decline continues to progress well, with over 2.7 kilometers developed thus far. Exploration drilling has also progressed well, and in Q3, we started infill drilling of the primary Phase X target, which is shown in purple on the slide. The infill drilling has shown exciting results, as is highlighted by the red stars on the slide, with multiple high-grade intercepts of strong widths, including DX71, which intersected approximately 37 meters at 10.7 grams per ton. Opportunity drilling this year outside of the primary exploration target has also shown strong grades and widths, indicating potential to expand mineralization at Phase X. Of particular note, DX52 intercepted an impressive 30 grams per ton over 32 meters and 11.5 grams per ton over 23 meters outside of the original exploration target.

We are pleased with these results, which continue to support our hypothesis of potential for higher margin mining from a bulk underground at Phase X. Moving to Curlew Basin, exploration drilling this year has continued to expand mineralization in the lower areas of our resource, where we see good margin potential on the back of strong grades and widths. As you can see on the slide, a recent hole at the Stealth returned approximately 14 grams per ton over 10 meters, well outside of our existing resource. We are encouraged with the results on both exploration and mine plan optimization, which are highlighting areas with good mining widths and strong grades. As Paul mentioned, we recently welcomed a new senior executive to our team in Chile to oversee the progression of Lobo Marte, and we are currently advancing baseline studies.

As a reminder, we published a feasibility study on Lobo Marte in 2021, which highlighted a high-quality development project located in close proximity to the La Coipa mine. Lobo Marte has significant potential for high margin production, driven by the strong heap leach grade of 1.3 grams per ton and a low strip ratio of 2:1. The asset has significant scale, with the study highlighting 4.7 million ounces of production over a 16-year mine life, with the average annual production of approximately 300,000 ounces. Strategically, Lobo Marte has the potential to be a key low-cost contributor to our production profile in the 2030s. Lastly, with respect to Great Bear, as Paul noted earlier, we released a PEA in Q3, which showed robust economics, impressive margins, and a quick payback, as you can see highlighted on this slide.

In addition to the impressive geology and economics of the project, our significant technical work to date has also demonstrated a clean and straightforward project across the board, including clean metallurgy with high recoveries of over 95%, a straightforward 10,000 ton-per-day milling circuit, competent geotechnical conditions, a robust tailings management strategy, and significant production flexibility from combined open pit and underground operations. It's important to note that these strong PEA results are just the beginning of the value story at Great Bear. This is a point-in-time estimate showing only a window into the underground potential based on the drilling we have been able to do from surface prior to April of this year.

As you can see on the slide, we also already have multiple intercepts well below the PEA resource with strong grades and widths, demonstrating continuity of the system at depth and the significant potential for further expansion of the resource. Given we have already drilled out a PEA inventory providing a robust 12-year mine life and demonstrated continuation of mineralization beyond that, we will be wrapping up deep drilling from surface at LP this year and shift our focus to progressing the advanced exploration decline, which will provide a platform for infill drilling from underground. This provides more efficient drilling than from surface at these depths. In parallel to developing AEX, we are also excited to be shifting our exploration focus to regional targets on the 120-square-kilometer land package, looking for both open pit and underground opportunities.

As you can see on the slide, there is an 18-kilometer trend of Great Bear, which has seen limited drilling to date, as we have largely been focused on drilling off the resource at LP on approximately four kilometers of that trend. We look forward to sharing those results with you through 2025. I will now turn it back to Paul for closing remarks.

Paul Rollinson (CEO)

Thanks, Will. Following a strong third quarter and first nine months, our business is positioned for a strong end to the year. Looking forward, we are excited about our future. We have a strong production profile. We're generating significant free cash flow. We have an investment-grade balance sheet that is continuing to strengthen. We have an attractive dividend. We have an exciting pipeline of both exploration and development opportunities. And we are very proud of our commitment to responsible mining that continues to make us a leader in sustainability. With that, Operator, I'd like to open up the line for questions.

Operator (participant)

Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Your first question comes from the line of Josh Wolfson from RBC Capital Markets. Your line is open.

Josh Wolfson (Analyst)

Hi, thanks very much. Just wanted to ask on Manh Choh, very strong results this quarter. It looks like both the contribution from throughput and grade. Is there any visibility you have into the sustainability of some of these results? I guess maybe more so on the throughput side, which probably has more likelihood of being sustained.

Claude Schimper (COO)

Good morning, Josh. Yeah, so we've reached a sort of stable production from that as we're going to mill roughly 180-2,000 tons a quarter from Manh Choh. So we're at a stable rate, and depending on the grade that we put in, the feasibility of it, we will manage it through the year. So we expect it to be consistent with what we've been able to do so far.

Josh Wolfson (Analyst)

Okay. Maybe just more specifically, 380,000 tons this quarter is pretty high and above steady state. Are there some characteristics of the ore that would prevent that from happening going forward, or is that a reasonable forecast going forward?

Claude Schimper (COO)

We're balancing it with the transportation, so roughly 200,000 per quarter from Manh Choh, but also the Fort Knox production. So it's being balanced. The hardness of the ore is predicted to be stable over the coming years.

Josh Wolfson (Analyst)

Got it. Okay. Thank you. And then a question maybe on the CapEx side, if there's any visibility we have at this point into future numbers. I know there's a number of projects the company's looking at evaluating going forward in terms of extending asset duration. How should we think about CapEx in upcoming years, the number this year being 1,050 plus accounting for inflation and maybe what the discretionary spending would be at current gold prices? Thank you.

Andrea Freeborough (CFO)

Thank you.

Sure, Josh. So yeah, as you said, our CapEx this year in 2024 is $1.05 billion. Looking forward, I'd first start by saying that we are still just in our budget process now, so we're looking at this now, but expect that it'll be not significantly above where we were this year, with just maybe adjusting for some inflation for what we're seeing as we look at it today.

Josh Wolfson (Analyst)

Great. Thank you, and if I can tuck in one more question, just on the capital allocation side. I mean, I'll say fantastic results in terms of cash generation this year, what I would think is comfortably above $1 billion. The debt repayment schedule looks like it will be resolved within the six months that the term loans do. I guess the easy part of the capital allocation seems to be done in terms of debt repayment that was identified earlier this year. Yeah, how do you think about allocating that free cash flow going forward in the context of, let's call it, reasonably stable CapEx and debt no longer being as high of a priority? Thanks.

Claude Schimper (COO)

Sure, Josh. Paul, I'll take that one. Look, our philosophy hasn't really changed. We've been consistent in our philosophy on capital allocation. As we've said, it's needs of the business. Our business, we keep it well maintained. We keep it well maintained because that reduces risk. After the needs of the business, obviously, the balance sheet. And as you fully agree, we're making a good headway on taking out that term loan, and I expect it'll be depending upon the gold price early in the new year. And then it comes down, as you look forward, it's really a question of internal growth versus return to capital. But I would say, I guess I'm sadly, this morning, as I look at what's happening with the gold price, it's a good reminder that we don't want to get too far ahead of ourselves.

Paul Rollinson (CEO)

It'll be gold price dependent, and we'll no doubt get that question as we take out the term loan and get into the new year. But it'll be somewhat gold price dependent.

Josh Wolfson (Analyst)

Great. Thank you very much.

Paul Rollinson (CEO)

Thanks.

Operator (participant)

Your next question comes from analyst Anita Soni from CIBC World Markets. Your line is open. Anita, your line is open.

Anita Soni (Analyst)

Hey, sorry, I put myself on mute there. Sorry about that. First question is, well, firstly, congratulations on a solid quarter, particularly on the cost control. I was wondering on the U.S. operations, as we look on Bald Mountain, you stacked a lot, and it seems like that's in the inventory. How do we think about the production volumes next year and into 2026? I'm assuming I was tempted to add some ounces in 2026 from residual leach, but I'm not sure how that works out in the next two years. Could you just give some clarity on Bald Mountain?

Claude Schimper (COO)

Yeah. Obviously, at Bald Mountain, we expect fairly stable production next year. Then based on what's in the current inventory and the current pits, that would start to taper off after next year. Obviously, we're looking at different optionality around additional pits and lay backs at Bald Mountain that could continue that production profile out for longer.

Anita Soni (Analyst)

Okay, so you stop mining at the end of 2025, and then some residual leach in 2026 still? Is that still on plan?

Claude Schimper (COO)

Yeah. Just based on the current pits, that's without approving any new projects.

Anita Soni (Analyst)

Okay. Secondly, Round Mountain, how does that, I mean, the volumes trended down a little bit this quarter. Does it still dip into the first half of next year before it picks up? I thought I read that you had constructed a new leach pad, and I'm just wondering when that starts to come on stream.

Claude Schimper (COO)

Yeah. I think next year, our plan has always been that we will have lower production next year because we're getting to the bottom of Phase W right now, and we're in the process of stripping Phase S. So we have made a construction of the heap leach pad, which is great because we're putting ounces on fresh liner. But we do expect a lower production profile next year before starting to ramp up again with Phase S in 2026 and 2027.

Anita Soni (Analyst)

Okay. So to wrap it up, just my question was driving towards going from 2.1 million ounces to 2 million ounces next year. The major driver, I guess, would be Round Mountain with some offset from Fort Knox, Manh Choh, ramping up.

Claude Schimper (COO)

Yeah.

Anita Soni (Analyst)

Okay. And so.

Claude Schimper (COO)

Yeah. There's kind of a higher production.

Anita Soni (Analyst)

Higher production of Paracatu's. Yeah.

Tanya Jakusconek (Analyst)

And then CapEx has a lower year next year, which that's nothing new. We've been talking about that.

Anita Soni (Analyst)

Yep. Okay. All right. Thank you very much. That's it for my questions.

Operator (participant)

Your next question comes from the line of Mike Parkin from National Bank. Your line is open.

Mike Parkin (Managing Director)

Hi, guys. Congrats on the solid quarter. On Round, the underground just keeps - you seem to keep hitting this high grade pretty consistently. And looking at slide 18 with where you're putting in the infrastructure, a lot of it seems like it's right on the doorstep of that decline. Is that basically on design, and you'll be able to access some of those higher grade zones, it looks like, early? And just give us a refresh. You've obviously got quite a bit of development in there. Are we still looking at first production in 2027? Is that tracking towards the front end, the back end of 2027, or into 2028? Just any kind of color you can provide in terms of how that's shaping up in terms of first access toore.

Claude Schimper (COO)

Yeah. First off, I think you interpreted it right in terms of where that drilling.

That's why we're calling it the opportunity drilling. We were really doing it as we progressed the decline towards the main exploration target from the open pit. So it is right there, the additional mineralization that we've run into. So that does make it very easy to access and get into. We still are looking at 2027 as the primary date for start of full operations at Round Mountain. But obviously, we may look to do some test stopes, things like that, as part of our due diligence as we progress the project. And it's easy to do that given that that opportunity drilling is right beside the decline. And the decline itself is actually quite close to the primary target as well. So we're kind of right there in terms of transitioning to production.

Mike Parkin (Managing Director)

Is any of the development going right through ore? Or it's kind of hard to tell from slide 18, but is it a decline or is it going through it?

Claude Schimper (COO)

We have crossed the ore in our development. I think last quarter, we highlighted some holes where we had the from and to, and you could see in there that the from was zero, meaning that it was right at the face of the decline. So we have crossed a couple of different ore bodies there, or mineralization zones, I should say.

Mike Parkin (Managing Director)

Excellent. And just to remind us, what are you kind of thinking of in terms of average grade coming from the underground, excluding the impact of these high-grade infills?

Claude Schimper (COO)

Yeah. The original target there was kind of a three- to four-gram bulk target. Really, as we had talked about at the beginning there, it was all about the geometry and the significant width that we see there. I highlighted that in a few slides in the past. Obviously, some of the intersections we've been having are higher grade than that, so that's a positive indicator. But you can see on the slide that we've really just started to drill off the main target. So we need to progress our work further before we have a more advanced and definitive view on the grade of the overall deposit.

Mike Parkin (Managing Director)

Okay. And will all this drilling get factored into an updated resource for the year-end reserve and resource update?

Claude Schimper (COO)

Not this year. Again, if you look just at the highlights on the slide, we clearly haven't drilled off that entire deposit. And there is some of that material that's already in our open pit resource. So before we do a conversion, we want to get widespread drilling across the deposit to be able to do a proper conversion. We'll do that next year.

Mike Parkin (Managing Director)

Okay. All right. Thanks, Will.

Paul Rollinson (CEO)

On the grade question. Yep. Sorry. I was just going to say on the grade question, obviously, in that three-to-four-gram, we believed that was the right zone for positive economics. But clearly, based on the grades we're getting, it seems to be trending to maybe something better than that, but we just haven't finished the work.

Mike Parkin (Managing Director)

Look forward to the update. Thanks, guys.

Operator (participant)

Your next question comes from Carey MacRury from Canaccord Genuity. Your line is open.

Carey MacRury (Analyst)

Hi. Good morning, everyone. Maybe I'll take a question for Claude on La Coipa. Can you just talk a little bit about the optimization initiatives that you're referring to there?

Claude Schimper (COO)

Yeah. Carey, good morning. Obviously, as we restarted this project, it's a pretty old mill, and it needs a lot of care and maintenance. We're being very selective on what we do to make sure that it runs efficiently. So as you would have noticed in the last couple of quarters, we've been putting a lot of effort into that. And at the same time, we are blending the ore and maintaining our focus on reaching the objective for the year, as we indicated. And we're still targeting the 250,000-ounce production.

Carey MacRury (Analyst)

Are there issues on the crushing side of the circuit or grinding or any color on sort of what you're trying to optimize for?

Claude Schimper (COO)

No. As I said, it's a pretty old mill. It's stood for eight years, and it's at altitude with different humidity levels, so as we go through it, we've been able to identify some sort of structural pieces. We're slowly working through those, and across the board in the mill, we've had some challenges initially on crushing, but we've resolved those. Milling is not a problem, and we're now focused on filtration.

Paul Rollinson (CEO)

The way I think about it, Carey, is we're just really kind of moving little bottlenecks. We address the efficiency of one area, and we get that optimized, and then we'll move down the line and look at the next place where we can get reliability, consistency. That's how I would think about it.

And then maybe a question on Bald Mountain. You've got a lot of resource there, not a lot of reserve. And you've got that Juniper project. I'm just wondering if you could give us a bit of color on what the objectives of that could look like?

Yeah. I'll start, and others can jump in. I mean, as you know, we've always said with Bald, we have quite a large resource of four million ounces. And we've also said that it's really been a bit of a situation that's a bit more on the line. Everything internally has to compete for capital. And some of those opportunities involved, you really want to have confidence in a higher gold price. The other characteristic of Bald, though, which is unlike the rest of our mines, is instead of having one big pit where you're doing a massive lay back, we have a whole bunch of little pits. So again, in the context of where we find ourselves in the gold price, we will be looking at some kind of quicker payback satellite opportunities.

Carey MacRury (Analyst)

Okay. Thank you.

Operator (participant)

Again, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Tanya Jakusconek from Scotiabank. Your line is open.

Tanya Jakusconek (Analyst)

Great. Good morning, everyone. Thank you for taking my questions. And congrats on a good quarter. Great there. So maybe over to Geoff. Can you just walk us through exactly what we're waiting for on this permit? And then once we get this permit, assuming it's soon, what can be done over the winter? I'm just trying to see if we're getting on a time here for the decline start next year. Thank you.

David Shaver (VP of Investor Relations)

Sure, Tanya. Thanks for the question. I'll probably divide that up with Will when we get into the actual activities that we'll be doing in the winter. But with respect to permitting of Great Bear, you're specifically asking about AEX, so I won't get into the federal IAAC process. But on the AEX front, there's a number of permits that we're waiting on, and we're expecting very shortly. You would have gathered from our press release that the first most important permit for which we require for any and all construction activity is the closure plan. And we're obviously pleased to have been invited by the Ministry of Mines to submit that for approval, which we have done, along with our financial assurance. And we expect to get that final approval very shortly. So that's the first kind of key permit.

Other permits also include and that we're waiting on a permit to take water from the Ministry of Energy, Conservation, and Parks. We are also expecting that in the near term, and furthermore, we're expecting a tree clearing permit from the Ministry of Natural Resources and Forestry, and that permit should come immediately after the approval of our closure plan, and then as we look sort of more into 2025 and more advanced AEX activities, we're also expecting and waiting on some additional permits from the Ministry of Environment, Conservation, and Parks in respect of certain wildlife, but again, it's not a question of if on these permits, but when and expecting all of them in relatively short order.

I would say that the last point I would make is that with respect to AEX, and while we're waiting on these, they do not impact our overall main project timeline either.

Paul Rollinson (CEO)

Activities?

David Shaver (VP of Investor Relations)

Yeah. On the activities generally, I'll just maybe turn that over to Will to talk about what we're going to do in the winter program.

Will Dunford (VP Projects)

Sure. Yeah. I mean, we can do the majority of our activities in the winter. Obviously, to get underground at AEX, the main scope of activities is building a portal pad and a box cut, so we can do excavation, and we can do the fill for that facility over the winter, and we can also work on some of the auxiliary facilities that we'll put in place: maintenance shop, ventilation fan, etc. So the majority of the work can be progressed over the winter. We're also going to continue to do geotechnical work for the wider project. We'll continue to do some RC drilling, and obviously, as we alluded to on the call, exploration drilling, so the winter is not slowing us down in regards to any of that.

Tanya Jakusconek (Analyst)

Okay. That's good to hear. Just cold up there. Maybe just then moving on to just the costing side. I don't know who wants to take this question, but just wanted to get a handle. And thank you, Andrea, for the CapEx for 2025. Just on the costing side, would it be safe to assume that you do have the 5% lower production outlook for next year? So that's going to impact your costs. And then we have the higher gold price that obviously also impacts your costs on the upside from royalties paid. And then we have inflation. Maybe we can just kind of understand what is the inflation right now that you're seeing in your labor. Are you in that 5% for both your employees and contractors? I'm just trying to understand how my costs should look next year over 2024.

Andrea Freeborough (CFO)

Yeah. Tanya, I guess I'll start by saying again that we are just still in our budgeting process, but I can certainly make some observations. You're right on the factors that you highlighted that will impact costs next year. The one other area I would note, and then I'll just come back to the inflation question, is just the production mix. With Tasiast being in just a lower production year based on mine plan sequencing, being our lowest cost asset, that will have a bit of an impact on overall costs as well. In terms of labor inflation specifically, yeah, I would say around the five or six% increase is what we're expecting just for labor costs. That would be labor and contractors together. Aside from labor costs, inflation would be lower than that.

Averaging out somewhere in the 3%, give or take, for overall inflation on average.

Tanya Jakusconek (Analyst)

Okay. And so if I was about that, and obviously the $100 move, it's about four bucks on your cost structure for royalties and so forth. So if I was to look at this, would it, as I look at your $10, I think you're $10.50 this year on your cost side. No, $10.20, I think it was. $10.20. Would it be safe to assume that somewhere in the 5%-10% range would be reasonable over 2024?

Yeah. As I said, we're just in our budget process, but maybe towards the higher end of that 5%-10% is kind of what we're thinking. But again, we'll come out with more specificity in February.

Paul Rollinson (CEO)

Yeah. I mean, again, it'll be a combination of a few factors. There's obviously the numerator denominator. We are going to be down a little bit, and there's the inflation, and then there's the grade effect of where is the production coming from next year versus this year. And we got to sort of throw all of that into the pot, and that will suggest that costs will be up a little bit, but we haven't finished the work.

Tanya Jakusconek (Analyst)

Yeah. And maybe, Paul, just to continue on that, I just want to talk about your reserves and cut-off grades. Obviously, that's another impact, right? And so I just want to make sure, just trying to get your understanding on what you're thinking about with the pricing next year and cut-off grades as well. Or sorry, year-end.

Paul Rollinson (CEO)

Yeah. Again, we're still doing the work. That's something we generally will put the pin in after we get through the budget process, though. Look, I would say, first of all, on the cut-off grades, we get that question a lot, given the gold price environment we're in. We're certainly not planning to do anything with our cut-off grades. Our mills are full. And so we'll just continue to stockpile low-grade material. So no changes on cut-off grades. As it relates to commodity price assumptions, my expectation is that within the industry, you'll see some upward movement from reserve and resource prices from where they were last year. We're still thinking about that. We're not actually that impacted, but I think it's more of a movement towards the reality we're in. But I expect across the board, probably there'll be a higher reserve and resource prices going forward.

Tanya Jakusconek (Analyst)

Okay. Look forward to getting more of that next year. Thank you so much for taking my questions.

Operator (participant)

That concludes our question and answer period. I will now turn the call back over to Paul for some final closing remarks.

Paul Rollinson (CEO)

Thank you, operator. And thanks, everyone, for joining us this morning. We look forward to catching up with you all in person in the coming weeks. Thanks for dialing in.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.