SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d OF
THE SECURITIES EXCHANGE ACT OF 1934
KINROSS GOLD CORPORATION
52nd Floor, Scotia Plaza, 40 King Street West
Toronto, Ontario M5H 3Y2
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INDEX
Press Release dated November 13, 2002 3-30
Material Change Report dated November 14, 2002 31-32
Signature Page 33
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Press Release November 13, 2002
Toronto, Ontario - Kinross Gold Corporation (TSX-K; Amex-KGC) ("Kinross" or the
"Company") announced today the results for the three and nine months ended
September 30, 2002 and the details with respect to the restatement of certain
disclosures in the U.S. Generally Accepted Accounting Principles ("GAAP")
reconciliation note to its consolidated financial statements for the year ended
December 31, 2001.
All results are expressed in United States dollars unless otherwise stated.
In the third quarter of 2002, the Company benefited from increased production
from the Timmins operations (Porcupine Joint Venture) and the Fort Knox mine as
both produced more gold equivalent ounces than in 2001. Cash flow provided from
operating activities increased by 39% in the third quarter of 2002 when compared
to 2001. The increase in cash flow provided from operating activities was due to
higher production from the Fort Knox Mine and the Porcupine Joint Venture, net
of lower production at the Refugio mine. In addition, the receipt of the final
settlement of the Refugio construction arbitration claim improved cash flow for
the third quarter.
In preparing the U.S. GAAP reconciliation information for the years ended
December 31, 2001, 2000 and 1999, the Company incorrectly relied on an
accommodation provided for under Form 20-F under the Securities Act of 1933.
Pursuant to this accommodation, the Company did not reconcile its investment in
Omolon Gold Mining Company ("Omolon"), which is accounted for under the
proportionate consolidation method pursuant to Canadian GAAP, to the equity
method under U.S. GAAP.
The restatement follows the review by the SEC of the preliminary proxy statement
of Echo Bay Mines Ltd. ("Echo Bay"), in connection with the proposed business
combination among Echo Bay, TVX Gold Inc. and the Company. The Company has
concluded that the criteria outlined in the accommodation do not apply to the
Company's investment in Omolon and its previous reliance on the accommodation
was incorrect. Therefore, since the Company's investment in Omolon has been
accounted for under the equity method for U.S. GAAP purposes, the U.S. GAAP
reconciliation information now sets out the effect of using the equity method
versus proportionate consolidation.
Third Quarter Consolidated Results
Gold equivalent production of 227,946 ounces at total cash costs of $205 per
ounce, combined with changes in working capital resulted in cash flow provided
from operating activities of $17.5 million or $0.05 per share during the third
quarter of 2002. This compares to gold equivalent production of 233,485 ounces
at total cash costs of $190 per ounce that resulted in cash flow provided from
operating activities of $12.6 million or $0.04 per share during the third
quarter of 2001. The Company recorded a net loss of $5.8 million or $0.02 per
share for the third quarter of 2002, compared to a net loss of $7.8 million or
$0.03 per share in 2001.
Nine Month Consolidated Results
Gold equivalent production of 657,396 ounces at total cash costs of $203 per
ounce, combined with changes in working capital resulted in cash flow provided
from operating activities of $48.5 million or $0.14 per share during the first
nine months of 2002. This compares to gold equivalent production of 706,559
ounces at total cash costs of $191 per ounce that resulted in cash flow provided
from operating activities of $58.7 million or $0.19 per share during the first
nine months of 2001, which included $21.1 million of proceeds from the
restructuring of gold forward sales contracts. The Company recorded a net
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loss of $18.0 million or $0.07 per share for the first nine months of 2002,
compared to a net loss of $18.8 million or $0.08 per share in 2001.
The 2001 third quarter and nine month results, as well as the December 31, 2001
balance sheet have been restated to comply with the new Canadian GAAP treatment
of unrealized foreign exchange gains (see Note 2 to the Consolidated Financial
Statements for details of this restatement).
Revenues
Gold and Silver Sales
The Company's primary source of revenue is from the sale of its gold production.
The Company sold 181,585 ounces of gold during the third quarter of 2002,
compared with 211,220 ounces in 2001. Revenue from gold and silver sales was
$56.5 million in the third quarter of 2002 compared with $65.0 million in 2001.
Revenue from gold and silver sales in the third quarter of 2002 was lower than
the revenue in 2001 due to lower gold sales as bullion inventories increased at
Kubaka. Subsequent to the end of the quarter the bullion inventories have been
reduced to normal levels at Kubaka. In the third quarter of 2002, the Company
realized $310 per ounce of gold, compared with $305 in 2001. The average spot
price for gold was $313 per ounce in the third quarter of 2002 compared with
$279 in 2001.
The Company sold 607,705 ounces of gold during the first nine months of 2002,
compared with 677,634 in 2001. Revenue from gold and silver sales was $184.5
million in the first nine months of 2002, compared with $199.8 million in 2001.
Revenue from gold and silver sales in the first nine months of 2002 was lower
than the revenue in 2001 due to lower gold sales since the 2001 revenue included
the results of operations from the Blanket mine (prior to the write down and
removing it from the consolidated financial statements) and the Refugio mine
continued to operate during the first half of 2001. In the first nine months of
2002, the Company realized $302 per ounce of gold, compared with $293 in 2001.
The average spot price for gold was $302 per ounce in the first nine months of
2002 compared with $266 in 2001.
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ -----------
Attributable gold equivalent production - ounces 227,946 233,485 657,396 706,559
Gold equivalent production - ounces
- (excluding non-consolidated ounces) 214,599 226,370 614,798 679,771
Gold sales - ounces 181,585 211,200 607,705 677,634
Gold sales revenue (millions) $ 55.1 $ 59.8 $ 179.8 $ 185.9
Gold deferred revenue realized (millions) 1.3 4.7 3.8 12.9
------------ ------------ ------------ -----------
Total gold revenue realized (millions) $ 56.4 $ 64.5 $ 183.6 $ 198.8
============ ============ ============ ===========
Average sales price per ounce of gold $ 303 $ 283 $ 296 $ 274
Deferred revenue realized per ounce of gold 7 22 6 19
------------ ------------ ------------ -----------
Average realized price per ounce of gold sold $ 310 $ 305 $ 302 $ 293
============ ============ ============ ===========
Average spot gold price per ounce $ 313 $ 279 $ 302 $ 293
Silver sales revenue $ 0.1 $ 0.5 $ 0.9 $ 1.0
Included in gold equivalent production is silver production converted to gold
production using a ratio of the average spot market prices for the two
comparative periods. The resulting ratios are 66.1:1 in 2002 and 61.1:1 in 2001.
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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
Interest and other income was $6.0 million in the third quarter of 2002 and
$13.7 million in the first nine months of 2002, compared with $1.5 million in
the third quarter of 2001 and $6.9 million in the first nine months of 2001. The
increase in interest and other income in the third quarter of 2002 is
attributable to the award and collection of the final portion of the Refugio
arbitration settlement. The Company recorded its share of the net award of $4.8
million during the third quarter of 2002 in addition to the preliminary award of
$5.5 million recorded in the second quarter of 2002.
Mark-to-Market Gain (Loss) on Written Call Options
Premiums received at the inception of written call options are recorded as a
liability at the time of issuance. Gains and losses on changes in the fair value
of the liability are recognized in earnings. The change in fair value of the
written call options was to record a loss of $0.3 million in the third quarter
of 2002 and $1.9 million in the first nine months of 2002. This compares with a
loss of $2.8 million in the third quarter of 2001 and $0.4 million in the first
nine months of 2001.
Costs and Expenses
Operating Costs
Consolidated operating costs were $39.0 million in the third quarter of 2002 and
$126.9 million in the first nine months of 2002, compared with $42.6 million in
the third quarter of 2001 and $133.9 million in the first nine months of 2001.
Total cash costs per ounce of gold equivalent produced were $205 in the third
quarter of 2002 and $203 in the first nine months of 2002, compared with $190 in
the third quarter of 2001 and $191 and first nine months of 2001.
Reconciliation of Total Cash Costs per
Equivalent Ounce of Gold to Consolidated Financial Statements
(millions except production in ounces and per ounce amounts)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ -----------
Operating costs per financial statements $ 39.0 $ 42.6 $ 126.9 $ 133.9
Operating costs for non-consolidated production 3.8 1.8 11.5 5.9
Site restoration cost accruals (0.8) (0.4) (2.4) (1.2)
Change in bullion inventory 5.9 1.6 1.1 0.1
Operating costs not related to gold production (1.2) (1.2) (3.6) (4.1)
------------ ------------ ------------ -----------
Operating costs for per ounce calculation purposes $ 46.7 $ 44.4 $ 133.7 $ 134.6
------------ ------------ ------------ -----------
Gold equivalent production - ounces 227,964 233,485 657,396 706,559
Total cash costs per equivalent ounce of gold $ 205 $ 190 $ 203 $ 191
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The above non-GAAP measure of total cash costs per equivalent 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 equivalent ounce are calculated in accordance with "The
Gold Institute Production Cost Standard". Total cash costs per ounce may not be
comparable to similarly titled measures of other companies.
Total cash costs per equivalent 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.
The item total cash costs per equivalent 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 equivalent
ounce for U.S. purposes are unchanged from the Canadian amounts.
Details of the individual mine performance are discussed in the following
sections:
Fort Knox Mine
The Fort Knox mine, located near Fairbanks, Alaska includes the results of
operations for both the True North and Fort Knox open pit mines. Gold equivalent
production in the third quarter of 2002 was 113,449 ounces and 296,162 ounces in
the first nine months of 2002, compared with 101,610 ounces in the third quarter
of 2001 and 306,700 ounces in the first nine months of 2001. Total cash costs
per equivalent ounce of gold were $219 in the third quarter of 2002 and $241 in
the first nine months of 2002, compared with $212 in the third quarter of 2001
and $197 in the first nine months of 2001.
Reconciliation of the Fort Knox Total Cash Costs per Equivalent Ounce of Gold to
Consolidated Financial Statements
(millions except production in ounces and per ounce amounts)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ -----------
Operating costs per financial statements $ 20.8 $ 19.5 $ 72.8 $ 59.3
Site restoration cost accruals (0.3) (0.2) (0.9) (0.8)
Change in bullion inventory 4.3 2.2 (0.6) 1.9
------------ ------------ ------------ -----------
Operating costs for per ounce calculation purposes $ 24.8 $ 21.5 $ 71.3 $ 60.4
------------ ------------ ------------ -----------
Gold equivalent production - ounces 113,449 101,610 296,162 306,700
Total cash costs per equivalent ounce of gold $ 219 $ 212 $ 241 $ 197
Operating costs at the Fort Knox open pit mine increased during the third
quarter of 2002 compared to the third quarter of 2001. Operating costs increased
due to the contract haulage of ore from the True North open pit to the Fort Knox
milling facility and higher than planned equipment maintenance costs. The mill
processed 4% more ore tonnes at a 13% higher grade during the third quarter of
2002 compared to 2001. The increase in the grade of ore processed was due to a
higher percentage of ore coming from the True North deposit, while the increase
in tonnages was due to lower hardness of ore processed. Since the results
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of operations during the third quarter were as planned the Company anticipates
production and unit costs to be in line with previous guidance.
Capital expenditures at the Fort Knox operations during the first nine months of
2002 were $12.0 million compared with $16.9 million during 2001. Capital
expenditures during the first half of 2002 were primarily incurred to raise the
tailings dam, to engineer, design and construct the tailings thickener, and to
conduct capitalized exploration on the Fort Knox main pit.
Porcupine Joint Venture
Effective July 1, 2002, the Company agreed to form a joint venture with a wholly
owned subsidiary of Placer Dome Inc. ("Placer"). The formation of the joint
venture, known as the Porcupine Joint Venture, combined the two companies gold
mining operations in the Porcupine district in Timmins, Ontario, Canada. The
objective of this transaction is to combine Placer's large modern milling
facility with the Company's large and highly prospective land package. The
ownership of this joint venture is 49% Kinross and 51% Placer. Placer is the
operator. The results of operations for 2002 include 100% of the Hoyle Pond
production and operating costs for the first six months of 2002. In addition,
the results of operations for 2001 represent 100% of the Hoyle Pond production
and operating costs.
The Company's share of gold equivalent production in the third quarter of 2002
was 44,344 ounces and 135,887 ounces in the first nine months of 2002, compared
with 37,967 ounces in the third quarter of 2001 and 110,530 ounces in the first
nine months of 2001. Total cash costs per equivalent ounce were $245 in the
third quarter of 2002 and $190 in the first nine months of 2002, compared with
$175 in the third quarter of 2001 and $187 in the first nine months of 2001.
Reconciliation of the Timmins Operation Total Cash Costs per Equivalent Ounce of
Gold to Consolidated Financial Statements
(millions except production in ounces and per ounce amounts)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ -----------
Operating costs per financial statements $ 11.0 $ 7.1 $ 27.9 $ 22.8
Site restoration cost accruals (0.3) - (0.9) (0.1)
Change in bullion inventory 0.2 (0.4) (0.8) (1.0)
Operating costs not related to gold production - (0.1) (0.4) (1.0)
------------ ------------ ------------ -----------
Operating costs for per ounce calculation purposes $ 10.9 $ 6.6 $ 25.8 $ 20.7
------------ ------------ ------------ -----------
Gold equivalent production - ounces 44,344 37,967 135,887 110,530
Total cash costs per equivalent ounce of gold $ 245 $ 175 $ 190 $ 187
Cash production costs were higher than planned for the third quarter of 2002 and
significantly higher than the third quarter of 2001 due to transitional issues
surrounding the formation of the joint venture. Gold production was affected by
a lower than planned grade of ore. With the majority of the transitional issues
behind us, the Company anticipates its share of production in the fourth quarter
from the joint venture to be approximately 55,000 ounces at total cash costs of
$190 per ounce.
Capital expenditures at the Hoyle Pond operations during the first nine months
of 2002 were $5.0 million compared with $6.3 million during 2001. Capital
expenditures during the first nine months of 2002 were required to further
advance the 1060 ramp, underground development drilling and additions to mobile
equipment.
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Kubaka Mine (54.7% Ownership Interest)
The Kubaka open pit mine is located in the Magadan Oblast in the Russian Far
East. The Company's share of gold equivalent production in the third quarter of
2002 was 56,806 ounces and 173,847 ounces in the first nine months of 2002,
compared with 68,272 ounces in the third quarter of 2001 and 174,747 ounces in
the first nine months of 2001. Total cash costs per equivalent ounce were $126
in the third quarter of 2002 and $135 in the first nine months of 2002, compared
with $133 in the third quarter of 2001 and $142 in the first nine months of
2001.
Reconciliation of the Kubaka Total Cash Costs per Equivalent Ounce of Gold to
Consolidated Financial Statements
(millions except production in ounces and per ounce amounts)
Three months ended Nine months ended
September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ -----------
Operating costs per financial statements $ 5.6 $ 8.6 $ 20.6 $ 24.4
Site restoration cost accruals (0.2) (0.2) (0.6) (0.2)
Change in bullion inventory 1.4 0.4 2.7 -
Management fees 0.4 0.3 0.8 0.7
------------ ------------ ------------ -----------
Operating costs for per ounce calculation purposes $ 7.2 $ 9.1 $ 23.5 $ 24.9
------------ ------------ ------------ -----------
Gold equivalent production - ounces 56,806 68,272 173,847 174,747
Total cash costs per equivalent ounce of gold $ 126 $ 133 $ 135 $ 142
The Kubaka mine continues to perform exceptionally well, having achieved the
lowest total cash costs per ounce of the Company's primary operations. Operating
costs were lower in the third quarter of 2002 than incurred in the third quarter
of 2001 as open pit mining operations began to wind down. Open pit mining
operations at Kubaka ended in October of 2002.
The Company has commenced processing the stockpiles and will supplement this
with underground ore in the North High Wall, Centre Zone and the North Vein in
2003. Current stockpiles and the underground reserves will be fully processed by
the end of 2003. However, the Company continues to review the exploration
results to date from the nearby Birkachan property and anticipates the
reactivation of diamond drilling at Birkachan in the fourth quarter of 2002.
Update on Litigation relating to the Kubaka Mine
On September 13, 2002, the Company announced that Omolon is at an advanced stage
of negotiating a settlement of an outstanding dispute between itself, several of
its Russian Shareholders and the Magadan Administration. Draft language of an
agreement was being settled when one of the Russian shareholders obtained an
order to freeze Omolon's bank accounts and gold inventory in the total amount of
the ruble equivalent of approximately $47.0 million pending final resolution of
its lawsuit. Underlying the dispute were unpaid loans made by the Magadan
Administration to Omolon's Russian shareholders at the time Omolon was
capitalized. In the face of the inability of these shareholders to repay the
loans, there has been an effort to shift the burden of repayment to Omolon. Two
Russian shareholders and the Magadan Administration on behalf of a third Russian
shareholder have launched lawsuits against Omolon alleging that the shares they
received were flawed as a result of registration deficiencies, which therefore
entitles such shareholders to a return of their original investments with
interest compounded thereon. These lawsuits have been encouraged by the Magadan
Administration as the major creditor of these shareholders. Omolon continues to
defend these lawsuits and is advised by counsel that it has good defenses
available to it.
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On October 9, 2002, a written agreement in principle was executed by the
representatives of the Government of the Russian Federation, the Magadan
Administration, Omolon and its two major shareholders (collectively, the
"Parties") setting forth their agreement in principle to resolve the lawsuits by
such shareholders pending against Omolon and to repay loans due to the Magadan
Administration. In accordance with the terms of the agreement in principle,
Omolon would purchase the outstanding shares currently held by all of its
Russian shareholders for the ruble equivalent of $45.4 million and the Magadan
Administration would ensure that all of the shares held by the Russian
shareholders will be tendered. Assuming that all Russian shareholders tender
their shares, Omolon would become a 100% owned subsidiary of the Company.
Omolon's appeal of the court decision which froze its bank accounts, resulted,
on October 14, 2002, in the court ruling that the amount of assets covered by
the arrest order should be lowered to the ruble equivalent of approximately
$22.3 million. Subsequently, Omolon's accounts in four banks and its entire gold
inventory were released from the arrest order.
On October 21, 2002, the Parties executed an additional written agreement in
principle reflecting their understanding with respect to the mechanics of the
redemption of the shares and settlement of the pending lawsuits. The
implementation of both the October 9, 2002 and the October 21, 2002 agreements
in principle has already begun, and it is expected that the entire transaction
should be completed by the end of December 2002.
As at September 30, 2002, Omolon had $29.0 million of cash and bullion
inventories of $9.9 million subject to the court ordered freeze. The Company has
included its share of cash ($15.9 million) and its share of bullion inventory
($5.4 million) as restricted items in the September 30, 2002 balance sheet. The
Company plans to close the share redemption before the end of 2002, by utilizing
the Omolon's cash including restricted cash and cash generated from operations
until closing.
Other Operations
In addition to its primary operating mines, the Company has ownership interests
in other locations including the Refugio mine, which is in residual, leach
production and the Blanket mine located in Zimbabwe. Gold equivalent production
at these locations during the first nine months of 2002 was 51,500 ounces at
total cash costs of $253 per ounce.
Reconciliation of the Other Operations Total Cash Costs per Equivalent Ounce of
Gold to Consolidated Financial Statements
(millions except production in ounces and per ounce amounts)
For the Nine Months Ended September 30, 2002
Denton
Blanket Refugio Rawhide Andacollo
-------------- ------------ ------------ -------------
Operating costs per financial statements $ - $ 2.3 $ - $ -
Operating costs for non-consolidated production 8.6 - 2.2 0.5
Site restoration cost accreuals - - - -
Change in bullion inventory - (0.2) - -
Operating costs not related to gold production - (0.5) - -
-------------- ------------ ------------ -------------
Operating costs for per ounce calculation purposes $ 8.6 $ 1.6 $ 2.2 $ 0.5
-------------- ------------ ------------ -------------
Gold equivalent production - ounces 31,783 8,902 8,957 1,858
Total cash costs per equivalent ounce of gold $ 272 $ 182 $ 246 $ 295
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Other Expenses
General, administration and exploration expenditures were $5.6 million in the
third quarter of 2002 and $14.5 million in the first nine months of 2002,
compared with $3.9 million in the third quarter of 2001 and $13.9 million in the
first nine months of 2001. General, administration and exploration expenses
increased during the third quarter of 2002 when compared to 2001 due to higher
exploration expenses, the costs of downsizing the technical services group in
Salt Lake City and relocating to Toronto, and fees associated with the Gold
Marketing Initiative.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization was $19.9 million during the third
quarter of 2002 and $61.3 million in the first nine months of 2002, compared
with $21.3 million in the third quarter of 2001 and $64.4 million in the first
nine months of 2001. Depreciation, depletion and amortization have increased to
$101 per equivalent ounce of gold sold in the first nine months of 2002, from
$94 in 2001. Depreciation, depletion and amortization increased primarily due to
a change in the mix of production at the Fort Knox mine. The True North
production has a higher per ounce charge than the Fort Knox production and there
was no significant production from the True North mine in the first six months
of 2001.
Interest Expense on Long-Term Liabilities
Interest expense on long-term liabilities was $1.2 million during the third
quarter of 2002 and $4.0 million in the first nine months of 2002, compared with
$1.9 million in the third quarter of 2001 and $6.5 million in the first nine
months of 2001. Interest expense on long-term liabilities during the first nine
months of 2002 is comprised of $1.2 million related to the Fort Knox industrial
revenue bonds and capital leases, $2.1 million on the debt component of
convertible debentures and the balance on the Kubaka project financing debt.
Interest expense decreased in 2002 due to lower debt balances outstanding and
lower interest rates.
Provision for Income and Mining Taxes
Provision for income and mining taxes was $1.7 million during the third quarter
of 2002 and $4.7 million in the first nine months of 2002, compared with $1.3
million in the third quarter of 2001 and $1.4 million in the first nine months
of 2001. Income taxes during the first nine months of 2002 were comprised of
$4.4 million of Russian income taxes and Canadian large corporations tax of $0.3
million.
Dividends on Convertible Preferred Shares of Subsidiary Company
Cumulative dividends accrued on the convertible preferred shares of subsidiary
company ("Kinam Preferred Shares") held by non-affiliated shareholders were $0.3
million in the third quarter of 2002 and $1.3 million in the first nine months
of 2002, compared with $0.9 million in the third quarter of 2001 and $4.3
million in the first nine months of 2001. During the first half of 2002, the
Company completed a cash tender offer and acquired 670,722 Kinam Preferred
Shares, leaving 223,878 or 12.2% of the issued and outstanding Kinam Preferred
Shares held by non-affiliated shareholders. The resulting effect of this
transaction, combined with the Kinam Preferred Shares acquired in the third
quarter of 2001 was to reduce the accrual of dividends to non-affiliated
shareholders.
Liquidity and Financial Resources
Operating Activities
Cash flow provided from operating activities was $17.5 million in the third
quarter of 2002 and $48.5 million in the first nine months of 2002, compared
with $12.6 million in the third quarter of 2001 and
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$58.7 million in the first nine months of 2001. In the first nine months of
2002, cash flow from operating activities was positively affected by lower
working capital requirements. The 2002 cash flow from operating activities was
used to finance capital expenditures and service existing debt.
Financing Activities
During the first quarter of 2002, the Company completed an equity issue and
issued 23.0 million common shares from treasury for net proceeds of $18.5
million. The majority of the funds received were used to acquire Kinam Preferred
Shares with a book value of $36.5 million for $10.7 million ($11.4 million
including costs of the tender offer). The $25.1 million difference in value
associated with this transaction was applied against the carrying value of
certain property, plant and equipment.
The debt component of the convertible debentures was reduced by $1.3 million in
the third quarter of 2002 and $3.8 million in the first nine months of 2002,
compared with $1.3 million in the third quarter of 2001 and $4.0 million in the
first nine months of 2001.
Long-term debt repayments were $0.2 million in the third quarter of 2002 and
$12.4 million in the first nine months of 2002, compared with $3.8 million in
the third quarter of 2001 and $39.9 million during the first nine months of
2001. Long-term debt repayments during the first nine months of 2002 were
comprised of $9.0 million of the Fort Knox industrial revenue bonds, $1.8
million of capital leases and $1.6 million of Kubaka project financing debt.
During the fourth quarter of 2002, the Company plans to repay $15.0 million of
the Fort Knox industrial revenue bonds.
The Company did not declare and pay any dividends on the Kinam Preferred Shares
during the third quarter or first nine months of 2002 or 2001.
As at September 30, 2002, the Company has a $50.0 million operating line of
credit in place with a bank syndicate, which is utilized for letters of credit
purposes. As at June 30, 2002, $55.6 million of letters of credit were issued
under this facility, which required the Company to restrict $5.6 million of cash
as security for the excess letters of credit outstanding. The final maturity
date of this operating line of credit is October 3, 2003. The Company is
currently negotiating with a syndicate of financial institutions for the
provision of a secured term credit facility to replace the existing secured
credit facility and provide additional availability. Negotiations are at a
preliminary stage and a binding commitment to provide these credit facilities
has not, as yet, been entered into.
As at September 30, 2002, the Company's long-term debt consists of $2.6 million
relating to the Kubaka project financing, $40.0 million of Fort Knox industrial
revenue bonds and various capital leases and other debt of $9.1 million. The
current portion of the long-term debt is $23.3 million.
Investing Activities
Capital expenditures were $8.9 million in the third quarter of 2002 and $18.1
million in the first nine months of 2002, compared to $9.2 million in the third
quarter of 2001 and $25.3 million in the first nine months of 2001. The first
nine months of 2002 capital expenditures focused primarily on the Timmins and
Fort Knox operations with 94% of total capital expenditures incurred at these
two mines. Capital expenditures were financed out of cash flow from operating
activities.
Commodity Price Risks
The Company 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. The Company does
not hold these financial instruments for speculative or trading purposes. The
Company is not subject to margin requirements on any of its hedging lines.
Page 12
The outstanding number of ounces, average expected realized prices and
maturities for the gold commodity derivative contracts as at September 30, 2002
are as follows:
Ounces Call Options Average
Hedged Average Sold Strike
Year 000 oz Price 000 oz Price
-------------------------------------------------------------------------------------------------------------
2002 33 $274 - $ -
2003 137 277 100 320
2004 137 277 50 340
2005 38 296 - -
---------------------- ----------------------
Total 345 150
====================== ======================
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, 2002 was negative $16.8
million.
In a press release on May 2, 2002 the Company indicated its intent to deliver
into its relatively small gold forward sales and not to replace these hedges.
Consequently, during the third quarter of 2002 the ounces of gold hedged
declined by 116,000 ounces. There was no change in call options sold during the
third quarter.
Restatement of the U.S. GAAP Reconciliation Information
In preparing the U.S. GAAP reconciliation information for the years ended
December 31, 2001, 2000 and 1999, the Company incorrectly relied on an
accommodation provided for under Form 20-F under the Securities Act of 1933.
Pursuant to this accommodation, the Company did not reconcile its investment in
Omolon, which is accounted for under the proportionate consolidation method
pursuant to Canadian GAAP, to the equity method under U.S. GAAP.
The restatement follows the review by the SEC of the preliminary proxy statement
of Echo Bay Mines Ltd. ("Echo Bay"), in connection with the proposed business
combination among Echo Bay, TVX Gold Inc. and the Company. The Company has
concluded that the criteria outlined in the accommodation do not apply to the
Company's investment in Omolon and its previous reliance on the accommodation
was incorrect. Therefore, since the Company's investment in Omolon has been
accounted for under the equity method for U.S. GAAP purposes, the U.S. GAAP
reconciliation information now sets out the effect of using the equity method
versus proportionate consolidation.
The effect of the restatement for U.S. GAAP purposes was as follows:
There was a decrease in total assets and total liabilities of $14.2 million and
$50.1 million, as at December 31, 2001 and 2000, respectively; total revenues
decreased by $65.3 million, $66.3 million and $68.6 million for the years ended
December 31, 2001, 2000 and 1999, respectively; and total expenses decreased by
$60.8 million, $66.4 million and $69.1 million for the years ended December 31,
2001, 2000 and 1999, respectively.
The effect of the reclassifications on the statement of cash flows for U.S. GAAP
purposes were as follows: Cash flows from operating activities decreased by
$27.5 million, $23.4 million and $24.7 million for the years ended December 31,
2001, 2000 and 1999, respectively; Cash flows from investing activities
increased by $4.7 million, $1.6 million and $2.2 million for the years ended
December 31, 2001, 2000 and 1999, respectively; and cash flows from financing
activities increased by $34.6 million, $19.4 million and $20.1 million for the
years ended December 31, 2001, 2000 and 1999, respectively.
Page 13
Notwithstanding the change in individual asset, liability, income and expense
amounts, there was no effect on the previously reported U.S. GAAP amounts for
net loss, loss per share information and common shareholders equity for each of
the periods presented.
The review continues and the Company believes that there is one item yet to be
resolved. This item pertains to the allocation to specific classes of assets of
historic property, plant and equipment writedowns recorded at the open pit mines
and the impact of the exclusion of low-grade stockpile ore reserves in the
computation of depreciation, depletion and amortization for certain categories
of property, plant and equipment. The Company will advise shareholders of the
results of this review if any restatement is required. The Company will file
restated financial statements and all other continuous disclosure documents
necessary to reflect these restatements upon completion of the SEC's review.
Proposed Combination Involving the Company, TVX Gold Inc. ("TVX") and Echo Bay
Mines Ltd. ("Echo Bay")
On June 10, 2002, the Company, Echo Bay and TVX announced that they had entered
into an agreement providing for the proposed combination of the companies. In a
concurrent transaction, TVX agreed to acquire from Newmont Mining Corporation
the interest in the TVX Newmont Americas joint venture that it does not already
own. The combination is conditional upon the completion of this purchase.
As a result of the SEC's ongoing review of the Echo Bay preliminary proxy
statement filed with the Commission, the companies will not be able to finalize
and mail their proxy statements in time for the companies to hold their special
meetings for the purpose of considering the combination in advance of November
30, 2002, the termination date specified in the Combination Agreement. The
parties are discussing amending the Combination Agreement to extend the
termination date, with a view to holding special meetings not later than January
2003.
Outlook
As at September 30, 2002 the Company has $94.7 million of working capital, which
includes a strong cash balance and low debt. The Company continues to reduce its
exposure to gold hedging by delivering into its forward contracts and not
replacing them, thereby reducing its gold forward position by approximately 25%
in the third quarter to 345,000 ounces of gold.
From an operations perspective in Timmins, the third quarter was a transitional
quarter with the commencement of the Porcupine Joint Venture. Consequently,
significant improvement in operating performance of these assets is anticipated
in the fourth quarter and in 2003. At Fort Knox further operating improvements
are anticipated with the arrival of the new tractors for the True North haulage
fleet in the fourth quarter and the commissioning of the new tailings thickener.
In October, the Company announced plans to increase its ownership interest from
54.7% to 100% of Kubaba and in the process resolve the lawsuits initiated in
Russia. This increased ownership interest in Kubaka is expected to partially
offset the expected decline in Kinross' gold equivalent production from Kubaka
in 2003 when mill feed will be predominately from lower grade stockpiles.
Significant exploration programs are underway in the fourth quarter at
Porcupine, Fort Knox and Refugio and are anticipated to begin later in the
quarter at Birkachan, north of Kubaka. The Company plans on providing an up-date
on relevant exploration activities and results thereof in mid- January 2003, by
way of our 4th Annual Exploration Up-date Conference Call.
Your Management and Board of Directors looks forward to concluding the
combination with Echo Bay and TVX as soon as possible so the Company can move
forward aggressively in 2003 with this much larger platform as the 7th largest
primary gold producer in the world.
Page 14
This press release 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.
For additional information, e-mail info@kinross.com or contact:
Robert M. Buchan Gordon A. McCreary Brian W. Penny
President and Vice President, Vice President, Finance
Chief Executive Officer Investor Relations and and Chief Financial Officer
Corporate Development
Tel. (416) 365-5650 Tel. (416) 365-5132 Tel. (416) 365-5662
-30-
Page 15
Gold Equivalent Production - Ounces
Three months ended Nine months ended
September 30 September 30
--------------------------- ---------------------------
2002 2001 2002 2001
------------ -------------- -------------- ------------
Primary operations:
Fort Knox 113,449 101,610 296,162 306,700
Porcupine Joint Venture (4) 44,344 37,967 135,887 110,530
Kubaka (1) 56,806 68,272 173,847 174,747
------------ -------------- -------------- ------------
214,599 207,849 605,896 591,977
------------ -------------- -------------- ------------
Other operations:
Refugio (2) - 8,455 8,902 57,081
Blanket 11,130 10,066 31,783 30,713
Denton-Rawhide (3) 2,217 4,239 8,957 13,545
Andacollo (3) - 2,876 1,858 9,638
Hayden Hill - - - 1,887
Guanaco - - - 1,718
------------ -------------- -------------- ------------
13,347 25,636 51,500 114,582
------------ -------------- -------------- ------------
Total gold equivalent ounces 227,946 233,485 657,396 706,559
============ ============== ============== ============
Consolidated production costs
($ per ounce of gold equivalent)
Cash operating costs $ 198 $ 182 $ 197 $ 184
Royalties 7 8 6 7
------------ -------------- -------------- ------------
Total cash costs 205 190 203 191
Reclamation 4 2 4 2
Depreciation and amortization 110 93 101 94
------------ -------------- -------------- ------------
Total production costs $ 319 $ 285 $ 308 $ 287
============ ============== ============== ============
(1) Represents the Company's 54.7% ownership interest.
(2) Represents the Company's 50% ownership interest.
(3) Includes proportionate share of Denton-Rawhide and Andacollo production
attributable to the Pacific Rim (formerly Dayton) ownership interest.
(4) Third quarter production reflects the Company's 49% ownership interest in
the Porcupine Joint Venture. Prior production reflects the Company's 100%
ownership interest in the Hoyle Pond mine.
Page 16
Cash operating costs
($ per ounce of gold equivalent)
Three months ended Nine months ended
September 30 September 30
--------------------------- ---------------------------
2002 2001 2002 2001
------------ -------------- -------------- ------------
Primary operations:
Fort Knox $ 217 $ 212 $ 240 $ 197
Porcupine Joint Venture 244 174 189 186
Kubaka 105 108 114 121
------------ -------------- -------------- ------------
193 171 192 173
------------ -------------- -------------- ------------
Other operations:
Refugio - 288 165 238
Blanket 295 282 268 243
Denton-Rawhide 250 243 241 252
Andacollo - 242 287 250
Hayden Hill - - - 267
Guanaco - - - 413
------------ -------------- -------------- ------------
287 273 247 245
------------ -------------- -------------- ------------
$ 198 $ 182 $ 197 $ 184
============ ============== ============== ============
Total cash costs ($ per ounce of gold equivalent)
Primary operations:
Fort Knox $ 219 $ 212 $ 241 $ 197
Porcupine Joint Venture 245 175 190 187
Kubaka 126 133 135 142
------------ -------------- -------------- ------------
199 179 199 179
============ ============== ============== ============
Other operations:
Refugio - 304 182 251
Blanket 298 286 272 245
Denton-Rawhide 256 243 246 252
Andacollo - 248 295 256
Hayden Hill - - - 277
Guanaco - - - 436
------------ -------------- -------------- ------------
291 281 253 253
------------ -------------- -------------- ------------
$ 205 $ 190 $ 203 $ 191
============ ============== ============== ============
Page 17
Gold Production and Cost Summary
Three months ended Nine months ended
September 30 September 30
--------------------------- ---------------------------
2002 2001 2002 2001
------------ -------------- -------------- ------------
Fort Knox
Tonnes milled/crushed (000's)(1) 3,663.1 3,534.0 10,445.8 10,413.6
Grade (grams per tonne) 1.13 1.00 1.04 1.06
Recovery 85% 87% 85% 86%
Gold equivalent production to dore (2) 113,449 101,610 296,162 306,700
Per ounce:
Total cash costs $ 219 $ 212 $ 241 $ 197
Depreciation, depletion and amortization 147 119 123 103
Site restoration cost accruals 3 2 4 3
------------ -------------- -------------- ------------
Total production costs $ 369 $ 333 $ 368 $ 303
============ ============== ============== ============
Porcupine Joint Venture (5)
Tonnes milled/crushed (000's)(1) 1,068.4 97.7 1,311.9 316.3
Grade (grams per tonne) 2.87 13.59 4.80 12.40
Recovery 92% 90% 90% 88%
Gold equivalent production to dore (2) 44,344 37,967 135,887 110,530
Per ounce:
Total cash costs $ 245 $ 175 $ 190 $ 187
Depreciation, depletion and amortization 98 97 91 100
Site restoration cost accruals 7 - 7 1
------------ -------------- -------------- ------------
Total production costs $ 350 $ 272 $ 288 $ 288
============ ============== ============== ============
Kubaka (3)
Tonnes milled/crushed (000's)(1) 205.7 226.6 636.0 666.0
Grade (grams per tonne) 15.98 17.30 15.73 15.04
Recovery 98% 98% 98% 98%
Gold equivalent production to dore (2) 56,806 68,272 173,847 174,747
Per ounce:
Total cash costs $ 126 $ 133 $ 135 $ 142
Depreciation, depletion and amortization 93 79 92 100
Site restoration cost accruals 4 3 3 1
------------ -------------- -------------- ------------
Total production costs $ 223 $ 215 $ 230 $ 243
============ ============== ============== ============
Page 18
Three months ended Nine months ended
September 30 September 30
--------------------------- ---------------------------
2002 2001 2002 2001
------------ -------------- -------------- ------------
Refugio (4)
Tonnes milled/crushed (000's)(1) - - - 4,643.9
Grade (grams per tonne) - - - 0.95
Recovery - - - 64%
Gold equivalent production to dore (2) - 8,455 8,902 57,081
Per ounce:
Total cash costs $ - $ 304 $ 182 $ 251
Depreciation, depletion and amortization - - - -
Site restoration cost accruals - - - -
------------ -------------- -------------- ------------
Total production costs $ - $ 304 $ 182 $ 251
============ ============== ============== ============
Blanket
Tonnes milled/crushed (000's)(1) 305.7 316.3 885.4 904.8
Grade (grams per tonne) 1.49 1.47 1.64 1.56
Recovery 76% 67% 68% 68%
Gold equivalent production to dore (2) 11,130 10,066 31,783 30,713
Per ounce:
Total cash costs $ 298 $ 286 $ 272 $ 245
(1) Tonnes milled/crushed represents 100% of mine production
(2) Gold equivalent to dore represents the Company's share
(3) 54.7% ownership interest
(4) 50% ownership interest
(5) Third quarter production reflects the company's 49% ownership interest in
the Porcupine Joint Venture. Prior production reflects the Company's 100%
ownership interest in the Hoyle Pond mine.
Page 19
Consolidated Balance Sheet
(expressed in millions of U.S. dollars)(unaudited)
As at As at
September 30 September 30
2002 2001
----------------------- -------------------
(re-stated)
Assets
Current assets
Cash and cash equivalents $ 84.5 $ 81.0
Restricted cash (Note 3) 21.5 -
Accounts receivable and other assets 12.4 13.8
Inventories 39.4 42.4
Restricted bullion inventory (Note 11) 5.4 -
Marketable securities 0.3 1.5
----------------------- -------------------
163.5 138.7
Property, plant and equipment (Note 5) 348.5 415.0
Long - term investments 11.9 12.9
Deferred charges and other assets 8.5 11.0
----------------------- -------------------
$ 532.4 $ 577.6
======================= ===================
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 37.7 $ 31.0
Current portion of long-term debt 23.3 33.1
Current portion of site restoration cost accruals 7.8 12.6
----------------------- -------------------
68.8 76.7
Long-term debt 28.4 31.0
Site restoration cost accruals 45.6 43.0
Future income and mining taxes 3.3 3.3
Deferred revenue 5.8 9.6
Other long-term liabilities 5.7 6.0
Debt component of convertible debentures 22.8 26.0
Redeemable retractable preferred shares 2.4 2.4
----------------------- -------------------
182.8 198.0
----------------------- -------------------
Convertible preferred shares of subsidiary company (Note 5) 12.6 48.0
----------------------- -------------------
Common shareholders' equity
Common share capital 965.3 945.7
Contributed surplus 12.9 12.9
Equity component of convertible debentures 130.4 124.8
Deficit (746.7) (723.2)
Cumulative translation adjustments (24.9) (28.6)
----------------------- -------------------
337.0 331.6
----------------------- -------------------
$ 532.4 $ 577.6
======================= ===================
Page 20
Consolidated Statements of Operations
For the quarter and nine months ended September 30
(expressed in millions of U.S. dollars except per share amounts)(unadudited)
Three months ended Nine months ended
September 30 September 30
------------------------- ---------------------------
2002 2001 2002 2001
----------- ------------- ------------- -------------
(re-stated) (re-stated)
Revenue
Mining Revenue $ 56.5 $ 65.0 $ 184.5 $ 199.8
Interest and other income 6.0 1.5 13.7 6.9
Mark-to-market loss on call options (0.3) (2.8) (1.9) (0.4)
----------- ------------- ------------- -------------
62.2 63.7 196.3 206.3
----------- ------------- ------------- -------------
Expenses
Operating 39.0 42.6 126.9 133.9
General and administrative 3.2 2.0 8.0 7.6
Exploration and business development 2.4 1.9 6.5 6.3
Depreciation, depletion and amortization 19.9 21.3 61.3 64.4
Gain on sale of assets (0.5) - (2.0) -
Foreign exchange loss - (0.6) 3.0 (0.2)
Interest expense on long-term liabilities 1.2 1.9 4.0 6.5
----------- ------------- ------------- -------------
65.2 69.1 207.7 218.5
----------- ------------- ------------- -------------
(3.0) (5.4) (11.4) (12.2)
Share in loss of investee companies (0.8) (0.2) (0.6) (0.9)
----------- ------------- ------------- -------------
Loss before taxes and dividends on convertible
preferred shares of subsidiary company (3.8) (5.6) (12.0) (13.1)
Provision for income and mining taxes (1.7) (1.3) (4.7) (1.4)
----------- ------------- ------------- -------------
Loss for the period before dividends on convertible
preferred shares of subsidiary company (5.5) (6.9) (16.7) (14.5)
Dividends on convertible preferred shares of subsidiary company
(0.3) (0.9) (1.3) (4.3)
----------- ------------- ------------- -------------
Net loss for the period (5.8) (7.8) (18.0) (18.8)
Increase in equity component of convertible debentures (1.3) (1.9) (5.5) (5.7)
----------- ------------- ------------- -------------
Net loss attributable to common shares $ (7.1) $ (9.7) $ (23.5) $ (24.5)
=========== ============= ============= =============
Net loss per share $ (0.02) $ (0.03) $ (0.07) $ (0.08)
Basic and diluted
Weighted averabe number common shares outstanding 358.2 322.3 354.5 308.5
Total outstanding and issued common shares at September 30 358.4 328.1
Page 21
Consolidated Statement of Common Equity Shareholders Equity
For the nine months ended September 30, 2002
(expressed in millions of U.S. dollars)(unaudited)
Cumulative
Common Contributed Convertible Translation
Shares Surplus Debentures Deficit Adjustments Total
------------ --------------- -------------- ----------- --------------- -----------
(re-stated
- Note 2)
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
============ =============== ============== =========== =============== ===========
Page 22
Consolidated Statements of Cash Flows
For the quarter and nine months ended September 30
(expressed in millions of U.S. dollars)(unadudited)
Three months ended Nine months ended
September 30 September 30
------------------------- ---------------------------
2002 2001 2002 2001
----------- ------------- ------------- -------------
(re-stated) (re-stated)
Net inflow (outflow) of cash related to the following activies:
Operating:
Loss for the period before dividends on convertible
preferred shares of subsidiary company $ (5.5) $ (6.9) $ (16.7) $ (14.5)
Items not affecting cash:
Depreciation, depletion and amortization 19.9 21.3 61.3 64.4
Deferred revenue realized (1.3) (4.7) (3.8) (12.9)
Site restoration cost accruals 0.8 0.4 2.3 1.2
Other (0.8) (0.7) (0.8) 0.1
----------- ------------- ------------- -------------
13.1 9.4 42.3 38.3
Proceeds on restructuring of gold forward sale contracts - - - 21.1
Site restoration cash expenditures (2.4) (1.9) (5.0) (4.5)
Changes in non-cash working capital items
Accounts receivable and other assets 6.9 (0.9) 5.9 0.8
Inventories (6.3) 3.4 (2.7) 8.1
Marketable securities - - 2.5 -
Accounts payable and accrued liabilities 5.8 2.7 3.1 (4.1)
Effect of exchange rate changes on cash 0.4 (0.1) 2.4 (1.0)
----------- ------------- ------------- -------------
Cash flow provided from operating activities 17.5 12.6 48.5 58.7
----------- ------------- ------------- -------------
Financing:
Issuance of common shares, net 0.2 2.3 19.5 2.8
Acquisition of preferred shares of subsidiary company - - (11.4) -
Reduction of debt component of convertible debentures (1.3) (1.3) (3.8) (4.0)
Repayment of debt (0.2) (3.8) (12.4) (39.9)
----------- ------------- ------------- -------------
Cash flow used in financing activities (1.3) (2.8) (8.1) (41.1)
----------- ------------- ------------- -------------
Investing:
Additions to property, plant and equipment (8.9) (9.2) (18.1) (25.3)
Long-term investments and other assets 0.2 (0.2) 2.1 (2.6)
Proceeds from the sale of property, plant and equipment 0.5 0.2 0.6 1.6
(Increase) decrease in restricted cash (17.1) - (21.5) 2.9
----------- ------------- ------------- -------------
Cash flow used in investing activities (25.3) (9.2) (36.9) (23.4)
----------- ------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (9.1) 0.6 3.5 (5.8)
Cash and cash equivalents, beginning of period 93.6 71.4 81.0 77.8
----------- ------------- ------------- -------------
Cash and cash equivalents, end of period $ 84.5 $ 72.0 $ 84.5 $ 72.0
=========== ============= ============= =============
Supplementary disclosure of cash flow information:
Cash paid for: Interest $ 0.2 $ 1.7 $ 4.9 $ 8.6
Income taxes $ 2.1 $ 0.5 $ 3.7 $ 1.4
Page 23
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, 2001, 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 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, 2001.
2. New Pronouncements
Effective January 1, 2002, the Company adopted the new Canadian Institute of
Chartered Accountants ("CICA") recommendations for foreign currency translation.
This standard eliminates the practice of deferring and amortizing unrealized
translation gains and losses on foreign currency denominated monetary items that
have a fixed or ascertainable life extending beyond the end of the fiscal year
following the current reporting period. Foreign exchange gains and losses
arising on translation of these monetary items are now included in the
determination of current period losses. The Company previously had unrealized
foreign exchange gains and losses on converting the debt component of Canadian
dollar dominated convertible debentures to U.S. dollars. In addition, the
Canadian dollar denominated redeemable retractable preferred shares were
translated to U.S dollars at the historical rate on the date of issue. The
adoption of this new standard has been applied retroactively with prior year
comparative amounts restated. The effects on the consolidated financial
statements are as follows:
------------------------------------------------------------------------------------------------
Change in Statement of Operations and Deficit amounts:
($ millions) 2001
------------------------------------------------------------------------------------------------
Increase in foreign exchange gain for the nine months ended September 30, 2001 $ (0.8)
Decrease in net loss for the nine months ended September 30, 2001 $ (0.8)
Decrease in deficit - December 31, 2000 2.2
Decrease in deficit - December 31, 2001 2.8
3. Restricted Cash
The Company has $21.5 million of restricted cash, comprised of $15.9 million of
cash in Russia which was subject to a court ordered freeze at September 30, 2002
in response to a lawsuit against Omolon by Russian shareholders (further
explained in Note 11) and a further $5.6 million securing outstanding letters of
credit issued in excess of the current credit facility.
Page 24
4. 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. In the first nine months of 2002, the mark-to-market adjustments
increased the liability by $1.9 million.
5. Acquisition of Convertible Preferred Shares of Subsidiary Company
During 2001, the Company acquired 945,000 convertible preferred shares of
subsidiary company with a carrying value of $48.9 million in exchange for
24,186,492 common shares of the Company valued at $23.2 million. The $25.7
million difference in value associated with this transaction was applied against
the carrying value of certain property, plant and equipment.
The Company completed an equity offering in February, 2002, and issued
23,000,000 common shares from treasury for gross proceeds before costs of the
issue of $19.5 million. The majority of funds raised were used to complete a
$16.00 per share cash tender offer for the Kinam Preferred Shares owned by
non-affiliated shareholders. On March 28, 2002, 652,992 Kinam Preferred Shares
were tendered under the cash tender offer and after extending the offer an
additional 17,730 Kinam Preferred Shares were tendered on April 4, 2002, leaving
223,878 or 12.2% of the issued and outstanding Kinam Preferred Shares held by
non-affiliated shareholders. The Kinam Preferred Shares tendered had a book
value of $36.5 million and were purchased by the Company for $10.7 million
($11.4 million including costs of the tender offer). The $25.1 million
difference in value associated with these transactions was applied against the
carrying value of certain property, plant and equipment.
6. Stock options
Effective January 1, 2002, the Company adopted the recommendations of the CICA
for stock-based compensation and other stock-based payments. This recommendation
establishes standards for the recognition, measurement and disclosure of
stock-based compensation and other stock-based payments made in exchange for
goods and services. The standard requires that all stock-based awards made to
non-employees be measured and recognized using a fair value based method. The
standard encourages the use of a fair value based method for all awards granted
to employees, but only requires the use of a fair value based method for direct
awards of stock, stock appreciation rights, and awards that call for settlement
in cash or other assets. Awards that the Company has the
Page 25
ability to settle in stock are recorded as equity, whereas awards that the
Company is required to or has a practice of settling in cash are recorded as
liabilities.
The Company's stock option plan is described in note 14 of the consolidated
financial statements for the year ended December 31, 2001. The Company has
elected not to use the fair value method of accounting for stock options. As a
result it 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, the pro forma net loss attributed to common shares would have
amounted to $23.6 million and pro forma EPS would have remained at a loss of
$0.05 per share for the nine month period ended September 30, 2002. The fair
value of the options granted during the nine month period ended September 30,
2002 is estimated to be $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 assumptions used for grants in the nine month
period ended September 30, 2002: dividend yield of 0%, expected volatility of
65%, risk-free interest rate of 4.1% 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 of its proforma earnings per share for the
period.
7. Segmented Information
The Company operates five gold mines: the Porcupine Joint Venture (49%
ownership), located in Ontario; Kubaka (54.7% ownership), located in Russia;
Fort Knox, located in Alaska, United States; Blanket, located in Zimbabwe; and
Refugio (50% ownership), located in Chile. As of December 31, 2001, the Company
no longer consolidated the Zimbabwe operation as a result of the political
situation in that country. See Note 15 to the 2001 Kinross Annual Report. In
addition, the Company has an 88.2% interest in E-Crete, a producer of aerated
concrete, 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 States. As the products and services in each of the
reportable segments, except for the corporate activities, are essentially the
same, 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.
Page 26
Reportable Operating Segments
------------------------------------------------------------------
Porcupine
Joint Corporate
Venture Kubaka Fort Knox Blanket Refugio E-Crete and Other Total
------------ ----------- -------------- ------------ ------------- ----------- -------------- ------------
As at September 30, 2002 and for the nine months ended September 30, 2002 (b)
Mining revenue $ 43.7 $ 47.1 $ 92.6 $ - $ 3.0 $ - $ (1.9) $184.5
Operating costs 27.9 20.6 72.8 - 2.3 2.2 1.1 126.9
Interest revenue - 0.2 - - - - 1.0 1.2
Interest expense - 0.2 1.2 - 0.1 0.4 2.1 4.0
Depreciation, depletion
and amortization 13.0 13.9 37.1 - - 1.0 (3.7) 61.3
Segment profit (loss) 1.5 13.2 (19.4) - 10.9 (3.3) (16.3) (13.4)
Segment assets 84.0 61.4 279.9 - 5.5 8.3 93.3 (a) 532.4
Capital expenditures 5.0 0.1 12.0 - - 0.5 0.5 18.1
As at September 30, 2001 and for the nine months ended September 30, 2001 (b)
Mining revenue $ 30.8 $ 47.3 $ 81.7 $ 9.7 $ 15.8 $ - $ 14.5 $199.8
Operating costs 22.8 24.4 59.3 7.6 15.5 1.7 2.6 133.9
Interest revenue - 1.0 - 0.1 - - 2.4 3.5
Interest expense - 0.9 2.9 - 0.3 0.2 2.2 6.5
Depreciation, depletion
and amortization 10.4 17.9 31.7 1.8 - 0.3 2.3 64.4
Segment profit (loss) (2.2) 3.7 (12.5) 1.3 1.4 (2.2) (1.7) (12.2)
Segment assets 87.2 93.5 331.5 10.9 7.0 8.2 67.0 (a) 605.3
Capital expenditures 6.3 0.4 16.9 0.6 - 0.4 0.7 25.3
For the three months ended September 30, 2002 (b)
Mining revenue $ 13.8 $ 13.9 $ 29.6 $ - $ (0.1) $ - $ (0.8) $ 56.5
Operating costs 11.0 5.6 20.8 - 0.4 0.8 0.4 39.0
Interest revenue - 0.1 - - - - 0.4 0.5
Interest expense - - 0.3 - - 0.2 0.7 1.2
Depreciation, depletion
and amortization 4.3 4.1 13.8 - - 0.2 (2.5) 19.9
Segment profit (loss) (2.8) 4.7 (6.0) - 4.3 (1.1) (3.2) (3.5)
Capital expenditures 1.0 - 7.5 - - 0.1 0.3 8.9
For the three months ended September 30, 2001 (b)
Mining revenue $ 11.0 $ 17.1 $ 25.9 $ 4.0 $ 2.8 $ - $ 4.2 $ 65.0
Operating costs 7.1 8.6 19.5 3.0 3.1 0.6 0.7 42.6
Interest revenue - 0.2 - 0.1 - - 0.4 0.7
Interest expense - 0.2 0.8 - - 0.2 0.7 1.9
Depreciation, depletion
and amortization 3.2 5.9 12.3 0.6 - 0.1 (0.8) 21.3
Segment profit (loss) 0.8 2.0 (7.2) 1.1 (0.4) (0.7) (1.0) (5.4)
Capital expenditures 1.9 - 6.6 0.4 - - 0.3 9.2
(a) includes $78.9 million (2001 - $51.9 million) in cash and cash equivalents
held at the Corporate level
(b) includes Corporate and other non core mining operations
Page 27
Reconciliation of reportable operating segment (loss) profit to net loss for the
period:
Three months ended Nine months ended
September 30 September 30
------------------------ ---------------------------
2002 2001 2002 2001
----------- ------------ ------------- -------------
Segment loss (0.3) (4.4) 2.9 (10.5)
Add (deduct) items not included in segment (loss) profit:
Corporate and other (3.2) (1.0) (16.3) (1.7)
----------- ------------ ------------- -------------
(3.5) (5.4) (13.4) (12.2)
Gain on sale of assets 0.5 - 2.0 -
Share in loss of investee companies (0.8) (0.2) (0.6) (0.9)
Provision for income taxes (1.7) (1.3) (4.7) (1.4)
Dividends on convertible preferred shares of subsidiary company (0.3) (0.9) (1.3) (4.3)
----------- ------------ ------------- -------------
Net loss for the period $ (5.8) $ (7.8) $ (18.0) $ (18.8)
=========== ============ ============= =============
Enterprise - wide disclosure:
Geographic information:
Mining revenue Mineral properties,
----------------------------------------------------
Three months ended Nine months ended plant and equipment
September 30 September 30 As at September 30
--------------------------- ------------------------
2002 2001 2002 2001 2002 2001
------------ -------------- ----------- ------------ ------------- -------------
United States $ 28.7 $ 28.8 $ 90.2 $ 92.3 $ 244.8 $ 298.7
Russia 13.8 17.3 47.0 47.3 15.9 36.1
Chile - 2.7 3.1 16.1 - -
Other - 3.9 - 9.7 5.2 12.0
------------ -------------- ----------- ------------ ------------- -------------
Total foreign 42.5 52.7 140.3 165.4 265.9 346.8
Canada 14.0 12.3 44.2 34.4 82.6 90.6
------------ -------------- ----------- ------------ ------------- -------------
Total $ 56.5 $ 65.0 $ 184.5 $ 199.8 $ 348.5 $ 437.4
============ ============== =========== ============ ============= =============
8. (Loss) Earnings per Share
(Loss) earnings 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 in 2001. The calculation of diluted earnings per share
assumes that employee stock options were exercised at the beginning of the
period, or time of issue, if later. Employee stock options with an exercise
price greater than the average market price of the common shares were not
included in the calculation of diluted earnings per share as the effect is
anti-dilutive. The average price of the common shares during the nine month
period was $2.614 (2001 - $1.078).
Page 28
2002 2001
---- ----
Weighted average number of common shares outstanding at September 30th 354,489 308,456
Add: Options, warrants and participating securities as if issued, exercised
and outstanding at January 1st
Options 10,717 3,403
Restricted shares 2 -
Convertible debentures (a) 14,651 14,651
Redeemable retractable preferred shares (b) 3,175 3,175
Convertible preferred shares of subsidiary company (c) 1,086 4,340
-------------- ---------------
Weighted average number of common shares used for diluted earnings
per share. 384,120 334,025
============== ===============
(a) Convertible debentures - $123.5 million (Cdn. $195.8 million) principal
issued and outstanding
(b) Redeemable retractable preferred shares - 384,613 shares issued and
outstanding
(c) Convertible preferred shares of subsidiary company - 223,878 shares
issued and outstanding to non-affiliated shareholders as at September
30, 2002.
9. 2001 figures
Certain of the 2001 figures have been reclassified to conform to the 2002
presentation.
10. Porcupine Joint Venture
Effective July 1, 2002, the Company formed a joint venture with a wholly owned
subsidiary of Placer Dome Inc. ("Placer"). The formation of the joint venture
combined the two companies' gold mining operations in the Porcupine district in
Timmins, Ontario, Canada. The ownership of this unincorporated joint venture is
51% by Placer and 49% by the Company. The joint venture operates pursuant to a
contractual agreement and both parties receive their share of gold output in
kind. Future capital, exploration, and operating costs will be funded in
proportion to each party's ownership interest. Placer contributed the Dome mine
and mill and the Company contributed the Hoyle Pond, Nighthawk Lake and Pamour
mines, exploration properties in the Porcupine district as well as the Bell
Creek mill.
The formation of the joint venture has been accounted for as an exchange of
non-monetary assets that does not represent the culmination of the earnings
process, and accordingly, has been recorded at the carrying value of the assets
contributed. The investment in the joint venture is being accounted for under
Canadian GAAP using proportionate consolidation.
For U.S. GAAP purposes, the investment will be accounted for using the equity
method, but for purposes of presentation of U.S. GAAP reconciliation
information, the Company will rely on an accommodation from the SEC which will
permit the Company to omit disclosure of differences arising from the use of
proportionate consolidation.
11. Recent Developments in Russia
In mid-September, the Company announced that Omolon was at an advanced stage of
negotiating a settlement of an outstanding dispute between itself, several of
its Russian shareholders and the Magadan Administration. Draft language of an
agreement was being settled when one of the Russian shareholders obtained an
order to freeze
Page 29
Omolon's bank accounts and gold inventory in the total amount of the ruble
equivalent of approximately $47 million pending final resolution of its lawsuit.
Underlying the dispute were unpaid loans made by the Magadan Administration to
Omolon's Russian shareholders at the time Omolon was capitalized. In the face of
the inability of these shareholders to repay the loans, there has been an effort
to shift the burden of repayment to Omolon. Two Russian shareholders and the
Magadan Administration on behalf of a third Russian shareholder have launched
lawsuits against Omolon alleging that the shares they received were flawed as a
result of registration deficiencies which therefore entitles such shareholders
to a return of their original investments with interest compounded thereon.
These lawsuits have been encouraged by the Magadan Administration as the major
creditor of these shareholders. Omolon continues to defend these lawsuits and is
advised by counsel that it has good defences available to it.
On October 9, 2002, a written agreement in principle was executed by the
representatives of the Government of the Russian Federation, the Magadan
Administration, Omolon and its two major shareholders (collectively, the
"Parties") setting forth their agreement in principle to resolve the lawsuits by
such shareholders pending against Omolon and to repay loans due to the Magadan
Administration. In accordance with the terms of the agreement in principle,
Omolon would purchase the outstanding shares currently held by all of its
Russian shareholders for the ruble equivalent of $45.4 million and the Magadan
Administration would ensure that all of the shares held by the Russian
shareholders will be tendered.
Omolon's appeal of the court decision which froze its bank accounts, resulted,
on October 14, 2002, in the court ruling that the amount of the assets covered
by the arrest order should be lowered to the ruble equivalent of approximately
$22.3 million. Subsequently, Omolon's accounts in four banks and all of its gold
inventory were released from the arrest order.
On October 21, 2002, the Parties executed an additional written agreement in
principle reflecting their understanding with respect to the mechanics of the
redemption of the shares and settlement of the pending lawsuits. The
implementation of both the October 9 and the October 21 agreements in principle
has already begun, and it is expected that the entire transaction should be
completed by the end of December 2002. Assuming that all Russian shareholders
tender their shares, Omolon would become a 100%-owned subsidiary of the Company
and, consistent with its accounting policies, the Company will commence
accounting for its investment in Omolon on a consolidated basis for both
Canadian and U.S. GAAP. There is no assurance that all of these shares will be
tendered and purchased.
Given the risks associated with the political, legal and economic uncertainties
that exist in Russia, the Company will continue to monitor its ability to
determine Omolon's strategic operating, investing and financing policies without
the cooperation of others. If the Company concludes that it no longer has the
ability to exercise the requisite control over Omolon, it will cease
consolidation and account for its investment in Omolon either on the equity or
cost basis, depending on its assessment of its level of control at that time.
The risks of operating in Russia are more fully disclosed in Note 21 to the 2001
audited financial statements of the Company.
12. Business Combination with TVX and Echo Bay
On June 10, 2002, the Company, Echo Bay and TVX announced that they had entered
into an agreement providing for the proposed combination of the companies. In a
concurrent transaction, TVX agreed to acquire from Newmont Mining Corporation
the
Page 30
interest in the TVX Newmont Americas joint venture that it does not already own.
The combination is conditional upon the completion of this purchase.
As a result of the U.S. Securities and Exchange Commission's ongoing review of
the Echo Bay preliminary proxy statement filed with the Commission, the
companies will not be able to finalize and mail their proxy statements in time
for the companies to hold their special meetings for the purpose of considering
the combination in advance of November 30, 2002, the termination date specified
in the Combination Agreement. The parties are discussing amending the
Combination Agreement to extend the termination date, with a view to holding
special meetings not later than January 2003.
Page 31
MATERIAL CHANGE REPORT
Item 1. Reporting Issuer
The reporting issuer filing this material change report is Kinross Gold
Corporation ("Kinross").
Item 2. Date of Material Change
November 13, 2002
Item 3. Press Release
Press release was issued by Kinross in Toronto on November 13, 2002 with respect
to the material change and filed via SEDAR.
Item 4. Summary of Material Change
Kinross announced today the results for the three and nine months ended
September 30, 2002 and the details with respect to the restatement of certain
disclosures in the U.S. Generally Accepted Accounting Principles ("GAAP")
reconciliation note to its consolidated financial statements for the year ended
December 3l, 2001. Kinross also announced that as a result of the Securities &
Exchange Commission's (the "Commission") ongoing review of Echo Bay Mine Ltd.'s
("Echo Bay") preliminary proxy statement filed with the Commission, Kinross, TVX
Gold Inc. and Echo Bay will not be able to finalize and mail their proxy
statements in time for the companies to hold their special meetings for the
purpose of considering their proposed business combination in advance of
November 30, 2002, the termination date specified in the combination agreement
dated July 10, 2002 (the "Combination Agreement"). The parties are discussing
amending the Combination Agreement to extend the termination date, with a view
to holding special meetings not later than January 2003.
Item 5. Full Description of Material Change
See attached press release dated November 13, 2002.
Item 6. Reliance on Section 75(3) of the Securities Act (Ontario) and analogous
securities legislation of each of the other provinces of Canada.
N/A
Item 7. Omitted Information
N/A
Item 8. Senior Officer
Ms. Shelley M. Riley
Corporate Secretary
Telephone: (416) 365-5198
Facsimile: (416) 365-0237
Page 32
Item 9. Statement of Senior Officer
The foregoing accurately discloses the material change referred to herein.
DATED at Toronto this 14th day of November, 2002.
KINROSS GOLD CORPORATION
PER: /s/ Shelley M. Riley
--------------------------
Shelley M. Riley
Corporate Secretary
Page 33
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KINROSS GOLD CORPORATION
Signed: /s/ Shelley M. Riley
--------------------------------------
Shelley M. Riley
Corporate Secretary
November 14, 2002.