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Kinross Gold (NYSE:KGC)
Q3 2021 Earnings Call
Nov 11, 2021, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Hello, and welcome to the Kinross Gold Corporation third quarter 2021 results conference call. [Operator instructions] I would now like to turn the call over to Mr. Chris Lichtenheldt, vice president, investor relations. Please go ahead, sir.

Chris Lichtenheldt -- Vice President, Investor Relations

Thank you, and good morning. With us today, we have Paul Rollinson, president and CEO; and from the Kinross senior leadership team; Andrea Freeborough, Paul Tomory, Geoff Gold. Before we begin, I would like to bring your attention to the fact we will be making forward-looking statements during this presentation. For a complete discussion of the risks, uncertainties, and assumptions which may lead actual results and performance to be different from estimates contained in our forward-looking information, please refer to Page 2 of this presentation, our news release dated November 10, 2021, the MD&A for the period ended September 30, 2021, and our most recently filed AIF, all of which are available on our website.

I will now turn the call over to Paul.

Paul Rollinson -- President and Chief Executive Officer

Thanks, Chris, and thank you, all, for joining us today. We are pleased with how our portfolio is positioned today and our outlook going into next year. Reflecting back on the five months since the fire at Tasiast, I'm pleased to report that the mill is back up and running, the expansion project remains on track, and we expect to have built high-grade stockpiles by year end. Despite Tasiast having recovered, our market value is still significantly lower than it was before the fire to the extent a portion of this may be caused by lingering concerns around Tasiast.

Today, we hope to alleviate those concerns. The restart of Tasiast, combined with the La Coipa project and strong performance from our broader portfolio puts us in an excellent position to grow production and free cash flow over the coming years. Turning to the third quarter. Results were in line with our expectations, and I'm encouraged to see signs of a continued return to normal across our operations, including a return to the Toronto office.

Before turning the call over to Andrea for a financial review and Paul for some operating highlights, I'll discuss some additional detail on Tasiast, the results from our studies on the Udinsk and Lobo-Marte projects, and some highlights from the quarter. At Tasiast, thanks to the excellent work by our team, the mill repairs were completed at a lower -- at a cost lower than earlier estimates, and we are on schedule to ramp up and reach throughput of 21,000 tonnes per day by the end of Q1 '22. Over the next few weeks, we will be focused on getting mill throughput back to levels comparable to the first half of the year. Moving on to our projects.

Yesterday, we released study results for two of our key growth projects, which, in both cases, largely confirmed our previous views. The pre-feasibility study for Udinsk reaffirms this is a low-risk, high-return project, extending our presence in Russia. We are now working on a feasibility study, which we plan to complete next year, after which we expect to make a formal construction decision. We continue to think -- we continue to expect that Udinsk will be the first mine on our Chulbatkan land package, and we are targeting first production in late 2025.

Turning now to Lobo-Marte. The feasibility study reaffirms all of the project's key parameters. Lobo-Marte continues to offer long-term growth optionality as our potential next mine in Chile after La Coipa. Moving now to third quarter results.

Our operations tracked well against our expectations, notwithstanding the challenging environment as the world works to come out of the pandemic. We remain on plan to meet our 2021 guidance and we are well-positioned to deliver our production and cash flow growth over the coming years. While our production growth and related cost efficiencies are expected to drive our cash flow higher, we are also facing inflationary pressures, which will offset some of this. Andrea will provide more detail on this in a few moments.

On capital returns, last quarter, we announced our share buyback program with the intention of spending roughly $150 million over the following 12 months. I'm pleased to report that to date, we have spent $50 million repurchasing our stock and are well on track with our plan. We continue to view our shares as extremely attractive and are pleased to be able to repurchase at these levels. Finally, I would like to provide an update on the progress we've made with respect to ESG.

We established an ESG executive committee that will report to our board on a quarterly basis to further enhance our initiatives. In addition, we are working to develop a road map that will support our greenhouse gas reduction targets for 2030. We expect to complete this assessment and provide detail around our targets with our year-end results. I'll now turn the call over to Andrea for a more detailed review of financial results. 

Andrea Freeborough -- Chief Financial Officer and Senior Vice President

Thanks, Paul. I'll summarize our financial results from the quarter, provide some comments on inflation and how we expect it may impact our business, and then provide an update on our balance sheet. Production during the quarter was approximately 483,000 ounces with sales slightly lower at 478,000 ounces. The decrease in production from last quarter was expected and was mainly due to Tasiast being down as a result of repairs to the mill.

Cost of sales of $870 per ounce in Q3 was up from the previous quarter due to lower production and increasing inflationary pressures. All-in sustaining costs of $1,225 per ounce was up compared to the previous quarter due to higher cost of sales and higher sustaining capex. The increase in both cost metrics was expected and we remain on track to meet our revised guidance for the year. Attributable operating margins remained strong in Q3 at 51%, driven largely by strong gold prices.

However, as previously indicated, inflation is impacting our results. We're currently seeing inflation in the range of 3% to 5% in the second half of this year, which we incorporated into our revised cost guidance last quarter. Looking ahead, as the price of key inputs remains elevated, we expect inflationary pressure on our operating cost in the range of 5% to 7% going forward. Having said this, our per ounce cost metrics next year are still expected to benefit from higher production.

Higher commodity prices, combined with tightening labor markets, specifically in specialized contract labor, such as engineering services and increased global demand for mining equipment, are also expected to contribute to higher capex next year. We're going through our budgeting process now, and we'll be in a position to provide more specific cost guidance with our annual results in February. Moving to our balance sheet. Our cash position decreased slightly from the previous quarter as expected, and we finished the quarter with $586 million of cash.

We generated free cash flow of $39 million during the quarter, which was a decrease from the previous quarter due largely to the absence of production at Tasiast while still spending on mining and repair. Looking ahead to the next quarter, Q4 is expected to be the highest of the year, and we expect to be within our guidance range for the year. Also during the fourth quarter, we expect to make a one-time payment of $50 million related to a normal course settlement of prior-year taxes. Our net debt at the end of the quarter was $860 million, and our trailing 12-month net debt-to-EBITDA ratio increased slightly and is just under 0.5 times.

As Paul mentioned, to date, we spent approximately $50 million on share repurchases, $32 million of which was during the quarter. This puts us on track to return approximately $300 million through dividends and buybacks from mid-2021 to mid-2022. Finally, we're well-positioned to further strengthen our balance sheet next year as our production and free cash flow ramp up. I'll now turn the call over to Paul Tomory. 

Paul Tomory -- Board of Directors

Thank you, Andrea. Today, rather than a detailed review of each operation, I'm wanting to discuss a few key highlights, and we'll be happy to take questions. At Tasiast, as Paul mentioned, the mill is up and running, the new trommel screen and other key items arrived on site as scheduled and were installed last month. The mill is periodically achieving prefire throughput rates as planned, and we are in the process of ramping up and expect to achieve these levels on a sustained basis with the goal of achieving full production rates -- throughput rates in December.

While the mill is being fed or ahead of schedule, we've elected to use lower grade ore during the ramp-up period, so the initial production will be modest. Furthermore, during this initial period, we are replenishing inventory on carbon, following its depletion in the weeks after the fire. All told, we expect to produce approximately 15,000 ounces during the fourth quarter and most importantly, exit the year with throughput rates of around 18,000 tonnes per day. We are on track initially with the project to hit 21,000 tonnes per day by the end of the first quarter.

I'm also pleased to say that the mill repair cost of approximately $20 million were considerably lower than our initial estimates. Mining activities of Tasiast continued through the quarter. And as Paul mentioned, by the end of the year, we expect to have built high-grade stockpiles. Mining rates during the quarter were lower than initially anticipated as a result of challenges in drilling and blasting.

However, these issues are being addressed, and we remain on track to achieve strong production in Tasiast next year, in line with our technical report and our studies. The 24k project is also progressing as planned with completion expected in mid-'23. Moving to Round Mountain. The optimization study, which includes Phase S, is on schedule, and we expect it to be completed in the first half of next year.

The geotech work is advancing well and will provide the data needed to make conclusive decisions around the ultimate slope angle, as well as any needed step-outs or berms. And to date, the study is not presenting any significant surprises. In the quarter, we also completed the relocation of the waste pile from the top of the pit to further stabilize the wall. Moving to the results of the Udinsk PFS.

This study confirms the project's expected strong returns. The conclusion of the PFS in combination of more than 55,000 meters of infill and geotech drilling has allowed us to convert approximately 3 million ounces from resources to reserves. Most of the study outcomes are in line with the assumptions of the time of the acquisition, with some improvements in recovery and production. capex, however, has increased by approximately $150 million broken down roughly as follows in thirds: First one-third, approximately from an inflation; another one-third is from value-add decisions that have improved the NPV but come with an added capital costs, for example, a finer crush for better recovery; and finally, one-third from scoped changes, including earthworks and camp facilities, which were more costly than initially anticipated.

As Paul mentioned, we also completed the FS on Lobo-Marte. The study confirmed the project's key parameters. Pit optimization work and infill drilling completed over the past two years resulted in an increase of Lobo-Marte reserves by approximately 300,000 ounces and to its resources by 600,000 ounces compared to the PFS. The estimate for initial capital increased by approximately 8% compared to the previous study, but mostly due to the reclassification of certain plant elements from sustaining to initial.

As such, the NPV is in line. We completed the study with key environmental and community considerations as part of the project design and continue to advance the EIA submission. Lobo-Marte will now enter a lengthy permitting phase, which we expect will take three years. Construction decision will not be made until after that with construction beginning no earlier than 2025.

Mining at Lobo-Marte will not begin until permitting has concluded, and we've completed mining at La Coipa as the two sites currently plan to use the same water source. We continue to see further potential to extend La Coipa. We're bringing satellite deposits into the mine plan, and we've made significant progress on that. Therefore, we may ultimately push out Lobo-Marte to accommodate more production at La Coipa, which would allow us to further leverage our capital investments in Chile and to extend our overall production profile in that country.

And with that, I'll turn it back to Paul. 

Paul Rollinson -- President and Chief Executive Officer

Thanks, Paul. I'll just wrap up by reiterating that production at Tasiast has resumed, and our operations are in excellent shape going into next year. Our balance sheet is strong, and we continue returning capital to shareholders through dividends and buybacks, and our production pipeline continues to grow as we advance our projects and position our company for long-term success. With that, operator, I would now like to open up the call to questions. 

Questions & Answers:


Operator

[Operator instructions] Your first question comes from the line of Tyler Langton with JPMorgan.

Tyler Langton -- JPMorgan Chase and Company -- Analyst

Good morning. Thanks for taking my questions. I guess, just to start, for the Udinsk and Lobo-Marte studies, can you just provide some detail, I guess, on the sort of the level of costs you're using for both capex and operating cost? I mean, are you using more sort of current prices in those estimates or some sort of historical average or sort of normalized range?

Paul Tomory -- Board of Directors

We're using current prices. So in the case of capital estimates, they're based on submissions from contractors and equipment suppliers. In the case of Udinsk, those are clearly nearer in time. As for operating costs, we are using current costs.

And -- in other words, the inflationary impacts that have been seen over the last year have been incorporated into that.

Tyler Langton -- JPMorgan Chase and Company -- Analyst

OK, perfect. So if sort of inflation is more temporary than would you definitely see a reduction potentially in those items?

Paul Tomory -- Board of Directors

Well, I certainly hope you're right on that. But as I said, at Udinsk, a full one-third of the capital cost increase was due to inflation. And so if inflation goes -- abates and prices drop, then yes, we could see that. But I don't anticipate that.

Tyler Langton -- JPMorgan Chase and Company -- Analyst

Right. And I guess the same is true then for operating costs, too, if sort of inflation abates?

Paul Tomory -- Board of Directors

Absolutely. Yes, the operating costs are more -- yes, that's right. You're correct.

Tyler Langton -- JPMorgan Chase and Company -- Analyst

OK, perfect. And then just at Tasiast, I know you mentioned you're on track to reach the 24k by mid-2023. Can you just remind us sort of the key milestones between now and then, and if there's a capital left to be spent? Just sort of details along those lines.

Paul Tomory -- Board of Directors

Yes. So we're looking at about $30 million to $40 million of capital in that program to get from 21 to 24. And it's a lot of incremental debottlenecking. So we're looking at additions to the screening capacity on the downstream side of the SAG mill itself.

There's a fair amount of work in the leach train with launders and interstate screens, the addition of tanks. So it's a lot of incremental little debottlenecking type work. And as you said, we're ramping up to 24 in the plan in the middle of '23.

Tyler Langton -- JPMorgan Chase and Company -- Analyst

Got it. Perfect. That's it for me. Thanks so much.

Paul Tomory -- Board of Directors

Thank you.

Operator

Your next question comes from the line of Fahad Tariq with Credit Suisse.

Fahad Tariq -- Credit Suisse -- Analyst

Hi, good morning. Thanks for taking my questions. Maybe first on 2022 cash costs. So you mentioned that on the inflation side, maybe 5% to 7%, but then maybe some offsets on -- from the higher production.

So I'm just trying to get a sense of -- like how should we be thinking about next year's cost relative to the $830 an ounce cash cost guidance for this year? Thanks.

Paul Rollinson -- President and Chief Executive Officer

Well, thanks. I would just remind, we have -- we're still in our budgeting cycle. We do provide our cost guidance explicitly when we get into mid-February with reporting the year end. But it is a numerator denominator effect with higher production.

We do expect the cost to go down. But Andrea, do you want to just maybe make a comment there?

Andrea Freeborough -- Chief Financial Officer and Senior Vice President

Sure. So we did -- I guess, going back, we did telegraph that next year cost would be coming down. That's sort of the tailwind. The headwind is obviously inflation.

I think we still do expect that cost for 2022 will be lower than 2021, but just not as low as we previously expected. So -- and that's, as Paul said, coming from the growth in production and that growth coming mostly from Tasiast and La Coipa, which are lower-cost operations.

Paul Rollinson -- President and Chief Executive Officer

And I would just remind, we do, for revenue assumptions, use $1500. Obviously, we're trying to -- that's below where we've been recently with spot, but it's closer in terms of anticipating taxes and royalties.

Fahad Tariq -- Credit Suisse -- Analyst

OK. Great. And then maybe just switching gears. On Paracatu, there was some commentary in the MD&A about temporary grade variability.

Can you just talk a little bit about what happened there in the quarter because the grades were quite a bit lower than I think I was expecting at least? And maybe how to think about Q4? Thanks.

Paul Tomory -- Board of Directors

Yes. So Paracatu, if you look at the long run, and I'm talking over years, depending on where we are in the mine sequence, certain parts of the pit behave better than others. And in this past quarter, we were mining at edges of the pit, which historically are more difficult to predict the grade. As we head into the last quarter, but particularly next year, we're going to get into the more reliable point-for-grade scenario.

So it's a temporary effect, which is not out of line with what we've seen over long-run performance on grade at Paracatu.

Fahad Tariq -- Credit Suisse -- Analyst

OK, great. That's it from me. Thanks.

Operator

Your next question comes from the line of Anita Soni with CIBC World Markets.

Anita Soni -- CIBC World Markets -- Analyst

Good morning. Thanks for taking my call. I just have a question with respect to the mining rates at Tasiast. Can you give us an update on how you're doing on the stripping? I think you had mentioned previously that you'd have to catch up on that in order to get the grades for 2022?

Paul Tomory -- Board of Directors

Yes. Thanks, Anita. So we still expect to hit the grades for next year, most importantly. We have had challenges in the mining rate.

We have accumulated probably a 35 million-tonne shortfall over the last two years. You'll remember the story. It was more acute last year due to COVID restrictions and quarantines. So we fell about 27 million tonnes, 28 million tonnes behind last year.

This year, we struggled to ramp up to the full run rate. But it's not as bad as it was last year. We've lost about 6 million tonnes or 7 million tonnes this year. However, those are both within the buffer we have on access to the higher-grade material in West Branch floor.

So by the end of this year, we will be stockpiling higher grades, and we don't anticipate an impact to next year's production. We will be in line with the technical report to potentially slightly beating it.

Anita Soni -- CIBC World Markets -- Analyst

OK. And then in terms of Round Mountain, could you remind me what the cost -- so I guess the costs that were excluded this quarter were a little higher than I was expecting. So could you remind me where are we on that -- the ultimate number that you thought that you were going to exclude for this year out of your cost? And how much more is there to go in Q4? And also remind me of the treatment to the next year. Just a little but a lot of stuff flying out of this quarter.

Paul Tomory -- Board of Directors

So, Anita, I'll describe the physical situation and Andrea will talk about the cost treatment. So we -- so we've completed a lot of geotech work, which includes the installation of dewatering wells, some pretty detailed analysis on modeling the pit walls. And we've come up with a pretty confident number where we're going to land in pit walls. So we've been able to steepen them a little bit from the last time we talked.

We have moved that waste dump that was on that wall that needs to be laid back and we're now mining waste down below that as we soften the slopes. And our total estimate for net mining over and above what had been anticipated is still in that $50 million to $60 million -- sorry, 50 million-tonne to 60 million-tonne range. And we're working on that plan. As to cost treatment, Andrea, over to you.

Andrea Freeborough -- Chief Financial Officer and Senior Vice President

So yes, Anita, we did you'll see, I think, about $43 million of costs related to Round Mountain that were adjusted out as abnormal cost. There's a little bit more coming in Q4, but I think we guided around $50 million for that, and we'll be within that number.

Anita Soni -- CIBC World Markets -- Analyst

OK. Thank you for taking my questions.

Operator

Your next question comes from the line of Carey MacRury with Canaccord.

Carey MacRury -- Canaccord Genuity -- Analyst

Hey, good morning, everyone. Just a question on 2022, just given all the moving parts in 2021. Can you just remind us of sort of where the growth is coming from in 2022 outside, obviously, of Tasiast?

Paul Tomory -- Board of Directors

So Tasiast ramping up to that 6 to 650 range, as I said, in line with the TR, that's a big one. And we're still targeting about 200 from La Coipa next year, and that's obviously production where there wasn't production before. Those are two key components. But we're also seeing a nice number at Fort Knox in the 300-plus range.

So those are the principal contributors, Tasiast, La Coipa, and a little bit of Fort Knox.

Carey MacRury -- Canaccord Genuity -- Analyst

And the timing of La Coipa again?

Paul Tomory -- Board of Directors

Midyear. We are -- the project is going really well. We're ahead of plan on stripping. Mill refurbishment is going well, and I'm happy to say that our capital costs there have been trending under our budget.

So we're in good shape with La Coipa, and I would be targeting midyear upon first production. And as I said, around 200 plus/minus next year.

Carey MacRury -- Canaccord Genuity -- Analyst

OK. And then maybe just on Tasiast. You mentioned the exit rate of about 18,000 tonnes a day, where is the mill currently at?

Paul Tomory -- Board of Directors

We're -- we've been achieving 80% to 90% of what we like. We just need to get that on a sustained basis. And the target is to exit the year at that 18,000, 19,000. But we've been doing say, 14,000, 15,000, 16,000 as we get the mill back up and running.

And one of the reasons we got the refurbishment costs less than initially anticipated that the mill ended up being in better condition than we had initially feared. And that, of course, translates into good operating performance as we're back up and running.

Carey MacRury -- Canaccord Genuity -- Analyst

Great. Thanks.

Operator

Your next question comes from the line of Mike Parkin with National Bank Financial.

Mike Parkin -- National Bank Financial -- Analyst

Thanks, guys, for taking my question, and congrats on a good quarter and looking forward to 2022. Just a couple of questions for me, most have been answered. With Paracatu, costs have been a bit elevated for power because of the water situation there in sources. Can you just give us an update on where that kind of stands now?

Paul Tomory -- Board of Directors

Yes. So in Brazil, we do own power plants, which generate -- which serve most of our needs. However, there's a market stabilization mechanism in Paracatu that even when you own your own power, you contribute to the overall grid. So you do take a hit when there's drought.

So what's happened in Brazil is there's been broad drought conditions that have led to shortages in hydroelectric power. In fact, it's the worst year since the 1930s. And so as a result of that, we're paying higher power costs. And that -- and we expect that to continue in the near term.

But the important point here is that our power costs would have been much higher if it weren't for the fact that we owned these hydro dams. So we are really happy that we have these. And I should also add that this drought, which is impacting hydroelectricity across the country, is not impacting us in Minas Gerias where the site water balances remain healthy.

Mike Parkin -- National Bank Financial -- Analyst

OK. That's great. And then with Udinsk, the exploration potential, you kind of indicated in the past is quite interesting and compelling. There's a kind of a high-grade structure going through the pit.

Can you just give us an idea of where you are in terms of following up on potential stepping out of the pit shell and checking for continuation of that trend and when we can expect kind of color and update on that program?

Paul Tomory -- Board of Directors

Yeah. So we've -- the focus, as you know, over the last year has been on the infill program, and we're really happy to report that the resource is in good shape. We've begun, over the last few months, the first field season. And what we're doing is we're looking at targets along strike on the Chulbatkan fault there, as well as depth extensions, principally Northeast and Southwest.

So what I would guide you toward is with our exploration update that we typically do in February, you'll be seeing a little bit more detail on the results of these programs that are really focused on areas outside that principal Udinsk reserve.

Mike Parkin -- National Bank Financial -- Analyst

OK. That was great. Thanks very much, guys.

Operator

Your next question comes from the line of Greg Barnes with TD Securities.

Greg Barnes -- TD Securities -- Analyst

Thank you. You seem to be hedging your bets a little bit on Lobo. Is it the lower return? Is it the permitting issues? Or just perhaps you're hopeful of another project steps into the pipeline ahead of that -- why are you a little bit cautious around that one?

Paul Rollinson -- President and Chief Executive Officer

Well, I think -- I mean, the key point there is -- the results of being reaffirmed what we expected is exactly how the study came out. I think -- I don't know that we're hedging our bets. We're really just, again, looking at this as a linear transition from La Coipa over to Lobo. We do have, in front of us, a lengthy permitting process.

We just want to take the time to make sure we do the very best we can. But we're not in a rush to try to get Lobo up and running. In fact, there's a reasonable chance we continue to extend La Coipa, and Lobo may get pushed out perhaps a year or two.

Paul Tomory -- Board of Directors

And Greg, the bet hedging that you're talking about really relates to -- let me just compare Udinsk and Lobo-Marte. In the case of Udinsk, a lot of permitting work can be done concurrently to engineering, and we anticipate having those permits in hand when we make a construction decision. In fact, at Udinsk, we're even looking at potentially doing some early work on capital investment next year. In the case of Lobo-Marte, we had to get the engineering to quite an advanced level in order to even begin the permitting process.

So whereas that Udinsk is a parallel process, at Lobo Marte, it's very much a serial process, where we have to have advance the engineering. And then we go into a very involved EIA process, which will take two years followed by sectorial permits. So it's -- the bet hedging is really about the complexity in the very long time period to get projects over the line on the permitting side in Chile.

Greg Barnes -- TD Securities -- Analyst

What about the water issues in the area? And -- I believe there's some hope you could connect La Coipa and Lobo on that front. But I know you've had issues with water in Chile historically.

Paul Rollinson -- President and Chief Executive Officer

Well, I think water is a sensitive topic in Chile and Region 3 in the Atacama. It's -- but again, I would remind that we have permitted wells that are pumping water, ready to go at -- they are pumping today at La Coipa. And part of our strategy here, we've shown it in a couple of maps in different slides. Interestingly, the water wells are physically located closer to Lobo than they are to La Coipa.

So part of our strategy here is to look at pumping water in the other direction, the water we have dedicated to currently to La Coipa turning around and pumping it the other direction to Lobo, which is closer.

Greg Barnes -- TD Securities -- Analyst

Right. So you're not concerned on that front necessarily? You don't see that as a potential hurdle in the permitting for --

Paul Rollinson -- President and Chief Executive Officer

Look, I think permitting has always -- is very important. It's something we take very seriously. And particularly in Region 3, we know water is a sensitive topic.

Paul Tomory -- Board of Directors

Greg, water is foremost on our list of things to look at through this permitting process. Kinross, we look at our Chilean assets with long-term view. We have a big resource still in the books at Maricunga. We have a very large reserve here at Lobo-Marte.

And we see increasing potential of La Coipa. All of these are subject to difficult perming environment. But if there's -- we started to look at what does a bigger strategy potentially look like for Chile. There are commercial options, for example, on desalination would we ever take the lead on a desalination project if we had larger inventories.

These are all conceptual things we're looking at right now in addition to the straight-line permit on water used from the La Coipa well. So the base case is the La Coipa well situation but we're also looking at conceptual other studies for options that may serve not only Lobo but also some of our other assets and potentially even further afield. So there, there's a parallel track.

Greg Barnes -- TD Securities -- Analyst

OK. Got you.

Paul Rollinson -- President and Chief Executive Officer

That's great. Thank you.

Operator

The next question comes from the line of Tanya Jakusconek with Scotiabank.

Tanya Jakusconek -- Scotiabank -- Analyst

Great. Good morning, everyone. Just wanted to come back with Paul Tomory, just on -- just back to Tasiast and La Coipa. Can you remind me just on the stockpile at Tasiast, what are we going to have by year end and what rates? Just so that we know what sort of buffer we have.

Paul Tomory -- Board of Directors

Yeah. We're targeting 60,000 to 70,000 ounces in stockpile at 2.5.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. And then when you were down with the mill, is there any buffer of time that you've gained timewise for linking in some of your other portions of the mill that we have a bit of a buffer? Have you gained any time on that to get to '24?

Paul Tomory -- Board of Directors

So as you know, Tanya, this is something we've been talking about. We continue to look at those opportunities. We haven't moved off our mid-'23 time line. The priority right now has been the 21k and the rebuild of the SAG mill.

Our engineering teams continue to look for those opportunities, but we're not yet ready to move off that mid-'23 date.

Tanya Jakusconek -- Scotiabank -- Analyst

No, I appreciate that. I just wanted to understand if there was a bit of a buffer in there.

Paul Tomory -- Board of Directors

If we had a buffer in the system, it was on the ramp-up timing to '21. So you might ask, we've moved our timing on 21k ramp up to the end of Q1, and we haven't adjusted our numbers, we probably had a little bit of a buffer there.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. And then maybe just coming back to La Coipa, just reading -- just listening to what you're finding there and then this continues into my reserve and resource question. It appears that Paul had mentioned that maybe we are able to gain another one or two years of additional mine life before pushing out Lobo Marte about that amount of time. Is there anything else that you're finding in the region that would make you think it would be beyond one or two years?

Paul Tomory -- Board of Directors

Yes, definitely. So we are -- there's four or five deposits or phases of deposits that we're looking at bringing to the final over and above what's in the current plan. The first step is a joint venture agreement with Codelco, and that's a multiphase deposit. And we've got to an agreement with Codelco in the first phase of that.

It's not 100% inked, but we anticipate having an agreement with them signed in the upcoming months. That would add one to two years to it. And then beyond there, there's a second phase of that deposit, it's called Puren. It would have, again, a multiyear potential beyond that.

And then also on our books are two other little satellite pits called Can Can and Coipa Norte, which would again add a year. So if all our dreams came through at La Coipa, we could see a path to production out to '27, even '28, which would add several years, talking four, five years to the initial La Coipa mine life estimate. And as Paul said, it would push out Lobo-Marte. We would actually want that.

That would be a good outcome. These are low-capital expansions at La Coipa. These are pretty high-quality pits. And to the extent that we were able to push out a Lobo-Marte as a result of the new production at La Coipa, we would welcome that as an outcome.

Tanya Jakusconek -- Scotiabank -- Analyst

All the start of the line and we wouldn't see Lobo-Marte in until maybe after 2028?

Paul Tomory -- Board of Directors

Definitely. If that were -- that would be a good outcome for us, and we are working toward that. And what we're going to do in our messaging is as we bring these satellite pits into the La Coipa plant, we will announce those as we come up. So one of the things that will drive slightly higher capital for us next year is we're going to be doing some stripping work at Puren, which is that Codelco JV deposit.

Tanya Jakusconek -- Scotiabank -- Analyst

And staying on to the reserve and resources. Just wanted to see how year-end 2021 is shaping up, excluding the addition that you had in Russia to reserves. I just want to talk about the mine sites. How do we feel about reserve replacement, number one? How do we feel about the resource category and just confirming that you're not changing cutoff rates and/or your pricing for your reserve and resources?

Paul Tomory -- Board of Directors

Yeah. So you took my freebie away from me there on Udinsk. So that was [Inaudible] replacement.

Tanya Jakusconek -- Scotiabank -- Analyst

You can't get that one, Paul.

Paul Tomory -- Board of Directors

Yeah. We're working on other potential adds. So as I mentioned in my prepared remarks, we're working on a Phase S study at Round Mountain. It will be closer to whether we get that into our year end.

That's a pretty big inventory there. That's going to be between 600,000 and 1 million ounces. We also just added 300 at Lobo-Marte. I know you're going to give me credit for that.

And then we're going to have little dribs and drabs at the other mine sites. We are still using 1,200 for our reserve optimization number. And we don't have any plans to move off that with this year end. So I think we're probably not going to have a replacement.

If you don't give us credit for Udinsk and Lobo-Marte, which together are 3.3 million of reserves, we're likely not going to have a full offset in the rest of the portfolio.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. That's fair enough. And then my last question is for Andrea. I just wanted to come back to that Slide 9, where you talk about these inflationary pressures, and thank you for that slide.

Just trying to understand if we were to assume that the first half of 2021 we didn't see inflationary pressures, would it be safe to assume, and again, all things being equal, that that 5% increase would be, if we were to benchmark it on maybe $1 per tonne on the first half of your cost of 2021? I'm just trying to see directionally what I should put the 5% and 10% on. Like I need a base. Like it's not all over 2021 because you've got some inflation for the second half and now would benchmarking it to first half of 2021 on the $1 per tonne be correct? Or how should I think about that?

Paul Rollinson -- President and Chief Executive Officer

Yes. Maybe we want to come back to you on that one, Tanya. If we can drill into it in a little bit more detail with some more numbers in front of us.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. And I appreciate that on the capital side, too.

Paul Tomory -- Board of Directors

I think --

Andrea Freeborough -- Chief Financial Officer and Senior Vice President

On the capital side, you can -- we had last year given the $800 million for capex for 2022. So that's kind of where you can apply the inflationary estimate that we've given. You can start with that $800 million. And then on top of that, we may have some other increases.

That $800 million number was based on projects approved at the time and a little bit for Udinsk on top of that. So there's other things that are coming -- that will come into capex on top of that, which in addition to --

Paul Rollinson -- President and Chief Executive Officer

Right. To the extent it's not inflation related, it's decisions where we've decided to think about reinvesting into our business.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. So 10% on the $800 million-plus other approved projects.

Andrea Freeborough -- Chief Financial Officer and Senior Vice President

Right.

Paul Tomory -- Board of Directors

That's right. Tanya, you picked up on the inflation note, obviously, on the commentary on us and other companies. It's still there and in some cases, still increasing. So it's not like inflation hit, things got to a new level and stabilized.

In some commodities, we continue to see price increases.

Tanya Jakusconek -- Scotiabank -- Analyst

OK. Just trying to make a stab at what we think we could see in 2022 from some sort of a stabilized level? And appreciate that it is moving -- is a moving target. So I'll wait for some more on that. Thank you. 

Paul Rollinson -- President and Chief Executive Officer

Thanks.

Operator

[Operator instructions] Your next question comes from the line of Matthew Murphy with Barclays.

Matthew Murphy -- Barclays -- Analyst

Hi. Yeah. I was going to ask about the capex outlook. What do you think the chances are that capex is flat to up as opposed to declining? I know you had talked at the time of your last guidance of the sustaining levels to sort of sustain production long term.

And so you tack on inflation and we're still in a pretty healthy gold price environment. I'm just wondering directionally how we should think about it.

Paul Rollinson -- President and Chief Executive Officer

I think we just covered it a little bit, Matthew. It's -- I think we're guiding up, both from an inflation and from a new project investment perspective, we expect up. I think we've -- in the past, we've used some directional sort of rule of thumbs. We've said that it will get you into the right zone if you're thinking about capital in terms of, say, $300 an ounce.

If you inflation affect that, you'd adjust that to sort of $3.30 per ounce, but I think directionally up.

Matthew Murphy -- Barclays -- Analyst

Yes. OK. Thank you.

Operator

Your next question comes from the line of Anita Soni with CIBC World Markets.

Anita Soni -- CIBC World Markets -- Analyst

Hi. Just a follow-up on that other expense line item. The -- I'm just -- I'm trying to get some color on what would be included in that for next year. Would there be any more -- I mean I assume Tasiast is done and then Round Mountain, would there be any comp there still?

Andrea Freeborough -- Chief Financial Officer and Senior Vice President

I mean it's difficult to predict just by the nature of other operating costs. But yes, I mean, obviously, we had some bigger ticket items that were specific to this year. So don't really expect any more of those two items going forward.

Paul Rollinson -- President and Chief Executive Officer

And COVID costs, which were part of it historically are, coming down.

Andrea Freeborough -- Chief Financial Officer and Senior Vice President

Yes. I mean COVID costs for the quarter were about $5 million, and they have been trending down kind of from last year throughout this year. So as far as we're seeing, we expect them to continue to go down, but we'll -- something we'll continue to watch as well.

Anita Soni -- CIBC World Markets -- Analyst

OK. Thank you.

Operator

And at this time, there are no further questions. Are there any closing remarks?

Paul Rollinson -- President and Chief Executive Officer

No. Thank you all for just today. We look forward to catching up with you in the coming weeks and months. Thanks, everyone.

Thank you, operator.

Operator

[Operator signoff]

Duration: 43 minutes

Call participants:

Chris Lichtenheldt -- Vice President, Investor Relations

Paul Rollinson -- President and Chief Executive Officer

Andrea Freeborough -- Chief Financial Officer and Senior Vice President

Paul Tomory -- Board of Directors

Tyler Langton -- JPMorgan Chase and Company -- Analyst

Fahad Tariq -- Credit Suisse -- Analyst

Anita Soni -- CIBC World Markets -- Analyst

Carey MacRury -- Canaccord Genuity -- Analyst

Mike Parkin -- National Bank Financial -- Analyst

Greg Barnes -- TD Securities -- Analyst

Tanya Jakusconek -- Scotiabank -- Analyst

Matthew Murphy -- Barclays -- Analyst

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