EX-99.1 2 ex99-1.htm FINANCIAL STATEMENTS AND MD&A ex99-1.htm
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and six months ended June 30, 2012
 
This management's discussion and analysis ("MD&A") relates to the financial condition and results of operations of Kinross Gold Corporation together with its wholly owned subsidiaries, as of August 8, 2012, and is intended to supplement and complement Kinross Gold Corporation’s unaudited interim condensed consolidated financial statements for the three months and six months ended June 30, 2012 and the notes thereto. Readers are cautioned that the MD&A contains forward-looking statements and that actual events may vary from management's expectations. Readers are encouraged to read the Cautionary Statement on Forward Looking Information included with this MD&A and to consult Kinross Gold Corporation's annual audited consolidated financial statements for 2011 and corresponding notes to the financial statements which are available on the Company's web site at www.kinross.com and on www.sedar.com. The June 30, 2012 unaudited interim condensed consolidated financial statements and MD&A are presented in US dollars and have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (“IASB”). This discussion addresses matters we consider important for an understanding of our financial condition and results of operations as at and for the three and six months ended June 30, 2012, as well as our outlook.
 
This section contains forward-looking statements and should be read in conjunction with the risk factors described in "Risk Analysis". In certain instances, references are made to relevant notes in the consolidated financial statements for additional information.
 
Where we say "we", "us", "our", the "Company" or "Kinross", we mean Kinross Gold Corporation or Kinross Gold Corporation and/or one or more or all of its subsidiaries, as it may apply. Where we refer to the "industry", we mean the gold mining industry.
 
 
1.
DESCRIPTION OF THE BUSINESS

Kinross is engaged in gold mining and related activities, including exploration and acquisition of gold-bearing properties, the extraction and processing of gold-containing ore, and reclamation of gold mining properties. Kinross’ gold production and exploration activities are carried out principally in Canada, the United States, the Russian Federation, Brazil, Ecuador, Chile, Ghana and Mauritania. Gold is produced in the form of doré, which is shipped to refineries for final processing. Kinross also produces and sells silver.
 
The profitability and operating cash flow of Kinross are affected by various factors, including the amount of gold and silver produced, the market prices of gold and silver, operating costs, interest rates, regulatory and environmental compliance, the level of exploration activity and capital expenditures, general and administrative costs, and other discretionary costs and activities. Kinross is also exposed to fluctuations in currency exchange rates, political risks, and varying levels of taxation that can impact profitability and cash flow. Kinross seeks to manage the risks associated with its business operations; however, many of the factors affecting these risks are beyond the Company’s control.
 
Commodity prices continue to remain volatile as economies around the world continue to experience economic difficulties.  Volatility in the price of gold and silver impacts the Company's revenue, while volatility in the price of input costs, such as oil, and foreign exchange rates, particularly the Canadian dollar, Brazilian real, Chilean peso, Russian rouble, euro, Mauritanian ouguiya, and Ghanaian cedi, may have an impact on the Company's operating costs and capital expenditures.
 
 
 
 
 
Consolidated Financial and Operating Highlights
 
     Three months ended June 30, Six months ended June 30,    
(in millions, except ounces, per share amounts, gold price and
production cost of sales per equivalent ounce)
  
2012
    
2011
    
Change
     % Change    
2012
    
2011
    
Change
     % Change    
Operating Highlights
                                                  
Total gold equivalent ounces (a), (e)
                                                  
Produced (c)
     654,243       696,631       (42,388 )     (6 %)     1,266,081       1,397,110       (131,029 )     (9 %)  
Sold (c)
     656,447       704,447       (48,000 )     (7 %)     1,285,952       1,423,024       (137,072 )     (10 %)  
                                                                   
Gold equivalent ounces from continuing operations (a),(d)
                                                                  
Produced (c)
     639,138       681,193       (42,055 )     (6 %)     1,235,087       1,366,859       (131,772 )     (10 %)  
Sold (c)
     640,836       688,282       (47,446 )     (7 %)     1,253,188       1,393,240       (140,052 )     (10 %)  
                                                                   
Total attributable gold equivalent ounces (a), (e)
                                                                  
Produced (c)
     647,877       676,245       (28,368 )     (4 %)     1,252,124       1,319,102       (66,978 )     (5 %)  
Sold (c)
     650,149       685,823       (35,674 )     (5 %)     1,271,829       1,346,611       (74,782 )     (6 %)  
                                                                   
Attributable gold equivalent ounces from continuing operations (a),(d)
                                                    
Produced (c)
     632,772       660,807       (28,035 )     (4 %)     1,221,130       1,288,851       (67,721 )     (5 %)  
Sold (c)
     634,538       669,658       (35,120 )     (5 %)     1,239,065       1,316,827       (77,762 )     (6 %)  
                                                                   
Financial Highlights from Continuing Operations (d)
                                                                  
Metal sales
   $ 1,006.7     $ 963.6     $ 43.1       4 %   $ 2,014.8     $ 1,881.7     $ 133.1       7 %  
Production cost of sales
   $ 464.9     $ 389.0     $ 75.9       20 %   $ 917.5     $ 760.5     $ 157.0       21 %  
Depreciation, depletion and amortization
   $ 157.0     $ 146.3     $ 10.7       7 %   $ 299.7     $ 297.0     $ 2.7       1 %  
Operating earnings
   $ 258.8     $ 352.8     $ (94.0 )     (27 %)   $ 561.7     $ 677.9     $ (116.2 )     (17 %)  
Net earnings from continuing operations attributed to common shareholders   $ 115.8     $ 244.3     $ (128.5 )     (53 %)   $ 215.4     $ 490.5     $ (275.1 )     (56 %)  
Basic earnings per share from continuing operations attributable to common shareholders   $ 0.10     $ 0.22     $ (0.12 )     (55 %)   $ 0.19     $ 0.43     $ (0.24 )     (56 %)  
Diluted earnings per share from continuing operations attributable to common shareholders   $ 0.10     $ 0.21     $ (0.11 )     (52 %)   $ 0.19     $ 0.43     $ (0.24 )     (56 %)  
Adjusted net earnings from continuing operations attributed to common shareholders(b)   $  156.0     $ 222.6     $ (66.6 )     (30 %)   $ 352.3     $ 394.2     $ (41.9 )     (11 %)  
Adjusted net earnings from continuing operations per share (b)
   $ 0.14     $ 0.20     $ (0.06 )     (30 %)   $ 0.31     $ 0.35     $ (0.04 )     (11 %)  
Net cash flow of continuing operations provided from operating activities   $ 77.4     $ 346.6     $ (269.2 )     (78 %)   $ 453.9     $ 687.2     $ (233.3 )     (34 %)  
Adjusted operating cash flow from continuing operations (b)
   $ 270.5     $ 404.8     $ (134.3 )     (33 %)   $ 591.2     $ 795.5     $ (204.3 )     (26 %)  
Average realized gold price per ounce from continuing operations   $ 1,568     $ 1,448     $ 120       8 %   $ 1,605     $ 1,386     $ 219       16 %  
Consolidated production cost of sales from continuing operations per equivalent ounce(c) sold(b)   $  725     $ 565     $ 160       28 %   $ 732     $ 546     $ 186       34 %  
Attributable(a) production cost of sales from continuing operations per equivalent(c) ounce sold(b)   $  725     $ 569     $ 156       27 %   $ 732     $ 555     $ 177       32 %  
Attributable(a) production cost of sales from continuing operations per ounce sold on a by-product basis(b)   $  658     $ 504     $ 154       31 %   $ 655     $ 485     $ 170       35 %  
 
                           
(a)
Total includes 100% of Kupol and Chirano production.  "Attributable" includes Kinross' share of Kupol (75% up to April 27, 2011, 100% thereafter) and Chirano (90%) production.
(b)
"Adjusted net earnings from continuing operations attributed to common shareholders", "Adjusted net earnings from continuing operations per share", "Adjusted operating cash flow from continuing operations",  "Consolidated production cost of sales from continuing operations per equivalent ounce sold", "Attributable production cost of sales from continuing operations per equivalent ounce sold", and "Attributable production cost of sales from continuing operations per ounce sold on a by-product basis" are non-GAAP measures.  The definition and reconciliation of these non-GAAP financial measures is included in Section 11 of this document.
(c)
"Gold equivalent ounces" include silver ounces produced and sold converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period. The ratio for the second quarter of 2012 was 54.77:1 (2011 - 39.67:1). The ratio for the first six months of 2012 was 53.17:1 (2011 - 41.47:1).
(d)
The comparative figures have been recast to exclude Crixás results due to its disposal.
(e)
The total gold equivalent ounces and total attributable gold equivalent ounces include Crixás.
 
 
 
 

Consolidated Financial Performance

Unless otherwise stated, “attributable” production and sales includes only Kinross’ share of Kupol (75% to April 27, 2011, 100% thereafter) and Chirano (90%).

Second quarter 2012 vs. Second quarter 2011

In the second quarter of 2012, Kinross’ attributable production from continuing operations declined by 4% compared with the second quarter of 2011, primarily due to the scheduled decline in grade at Kupol and Kettle River.  Also, during the second quarter of 2012 production was lower at La Coipa due to increased planned reliance on lower grade stockpile ore. Attributable production from continuing operations for the second quarter of 2012 was also affected by the less favourable gold equivalent ratio compared with the same period in 2011. These decreases were offset to some extent by an increase in production at Chirano due to higher gold grades, at Paracatu due to the increased processing capacity provided by the third ball mill, and the increase in the Company’s interest in Kupol from 75% to 100% on April 27, 2011.
 
Metal sales from continuing operations during the second quarter of 2012 were $1,006.7 million, a 4% increase compared with $963.6 million for the corresponding period in 2011. The increase was a result of higher metal prices realized, offset to some extent by lower gold equivalent ounces sold.  The average realized gold price from continuing operations was $1,568 per ounce, an increase of 8% compared with the second quarter of 2011.  Gold equivalent ounces sold were lower due to the decline in production noted above.
 
Production cost of sales from continuing operations during the second quarter of 2012 increased by 20% compared with the second quarter of 2011, largely due to the increase in processing of lower grade ore as described above, and the increase in input costs such as energy, labour and consumables.
 
During the second quarter of 2012, depreciation, depletion and amortization from continuing operations increased by 7% compared with the second quarter of 2011, largely due to an increase in gold equivalent ounces sold at Chirano and Paracatu.
 
Operating earnings from continuing operations in the second quarter of 2012 declined to $258.8 million compared with $352.8 million during the second quarter of 2011, primarily due to the reduction in gold equivalent ounces sold, increases in production cost of sales and exploration and business development costs, offset to some extent by higher metal prices realized.
 
Net earnings from continuing operations attributed to common shareholders for the second quarter of 2012 was $115.8 million or $0.10 per share compared with $244.3 million or $0.22 per share for the second quarter of 2011. The decrease in net earnings from continuing operations attributed to common shareholders for the second quarter of 2012 was primarily a result of the lower operating earnings as described above. In addition, other income (expense) decreased from income of $17.0 million for the second quarter of 2011 to an expense of $28.5 million for the second quarter of 2012. The decrease was primarily due to an impairment of $20.2 million related to certain of the Company’s available-for-sale investments. In addition, the Company recognized foreign exchange losses of $13.5 million in the second quarter of 2012 compared with gains of $7.4 million recognized during the same period in 2011. The change from foreign exchange gain to loss for the second quarter of 2012 compared with the same period in 2011 was due primarily to the translation of net monetary assets denominated in foreign currencies to the US dollar, with the US dollar having strengthened during this period against the Russian rouble, Brazilian real, Ghanaian Cedi and Mauritanian ouguiya.
 
Adjusted net earnings from continuing operations attributed to common shareholders was $156.0 million, or $0.14 per share, in the second quarter of 2012 compared with $222.6 million, or $0.20 per share, for the same period in 2011. The 30% decrease in adjusted net earnings from continuing operations attributed to common shareholders was mainly due to the lower operating earnings as discussed above.
 
Net cash flow of continuing operations provided from operating activities in the second quarter of 2012 was $77.4 million compared with $346.6 million in the second quarter of 2011, with the change primarily due to a decrease in margins and an increase in inventory and receivables.
 
The adjusted operating cash flow from continuing operations during the second quarter of 2012 decreased to $270.5 million from $404.8 million, mainly due to the lower margins as discussed above.
 
Consolidated production cost of sales from continuing operations per equivalent ounce sold was 28% higher in the second quarter of 2012 compared with the second quarter of 2011, largely due to lower gold equivalent ounces sold combined with increases in labour, energy, consumables and other production costs across the Company’s operations.
 
On May 29, 2012, Kinross announced that it had entered into a purchase and sale agreement to sell its 50% interest in the Crixás gold mine, to a subsidiary of AngloGold Ashanti Ltd. The sale closed on June 28, 2012 and Crixás has been reclassified as a discontinued operation in the current and comparative periods. Gold equivalent ounces produced and sold at Crixás in the second quarter of 2012 were 15,105 and 15,611, respectively, which were lower compared with 15,438 and 16,165 gold equivalent ounces produced and sold, respectively, during the second quarter of 2011. The decrease was largely due to lower recoveries and tonnes processed.  Metal sales of $25.2 million were 4% higher in the second quarter of 2012 compared with $24.2 million in the second quarter of 2011 due to an increase in metal prices realized, offset to some extent by a decline in gold equivalent ounces sold.  Net earnings from Crixás during the second quarter of 2012 were $37.8 million inclusive of an after-tax gain on disposal of $33.8 million.
 
 
 
First six months of 2012 vs. First six months of 2011

Kinross’ attributable production from continuing operations decreased by 5% in the first six months of 2012 compared with the same period in 2011, primarily due to the scheduled decline in grade at Kupol and Kettle River.  In addition, during the first six months of 2012 production was lower at La Coipa due to increased planned reliance on lower grade stockpile ore. Attributable production from continuing operations for the first six months of 2012 was also affected by the less favourable gold equivalent ratio compared with the same period in 2011. These decreases were offset to some extent by an increase in production at Chirano due to higher gold grades, at Paracatu due to the increased processing capacity provided by the third ball mill, and the increase in the Company’s interest in Kupol from 75% to 100% on April 27, 2011.
 
Metal sales from continuing operations for the first six months of 2012 were $2,014.8 million, a 7% increase compared with the first six months of 2011.  The increase in metal sales was due to higher metal prices realized, offset to some extent by lower gold equivalent ounces sold.  The average realized gold price from continuing operations was $1,605 per ounce, an increase of 16% compared with the first half of 2011. Gold equivalent ounces sold were lower due to the decline in production noted above.
 
Production cost of sales from continuing operations increased by 21% to $917.5 million in the first six months of 2012 compared with $760.5 million for the first six months of 2011, primarily due to the increase in processing of lower grade ore and the increase in input costs such as energy, labour and consumables.
 
During the first half of 2012, depreciation, depletion and amortization from continuing operations increased by 1% compared with the same period in 2011, primarily due to an increase in gold equivalent ounces sold at Chirano and Paracatu, offset largely by lower gold equivalent ounces sold at Kupol and La Coipa.
 
During the first six months of 2012, the Company recorded operating earnings from continuing operations of $561.7 million compared with $677.9 million for the first six months of 2011, a decrease of 17%. This was largely due to the reduction in gold equivalent ounces sold, increases in production cost of sales and exploration and business development costs, offset to some extent by higher metal prices realized.
 
Net earnings from continuing operations attributable to common shareholders for the first six months of 2012 declined by 56% to $215.4 million or $0.19 per share compared with $490.5 million or $0.43 per share in the first six months of 2011.  The decrease was primarily a result of lower operating earnings as described above and an increase in income tax expense as described below. In addition, other income (expense) decreased from income of $105.1 million for the first six months of 2011 to an expense of $16.2 million for the same period in 2012. The decrease was primarily due to an impairment charge of $20.2 million related to certain of the Company’s available-for-sale investments as well as foreign exchange losses of $6.2 million, offset to some extent by net non-hedge derivative gains of $13.5 million due largely to the impact of the fair value adjustments related to the embedded derivatives on the Company’s senior convertible notes and Canadian dollar denominated common share purchase warrants. Included in other income (expense) in the first half of 2011 was a gain on the sale of the Company’s interest in Harry Winston Diamond Corporation (“Harry Winston”) of $30.9 million, net non-hedge derivative gains of $48.1 million due primarily to the impact of the fair value adjustments related to the embedded derivatives on the Company’s senior convertible notes and Canadian dollar denominated common share purchase warrants, and foreign exchange gains of $21.9 million.  Income tax expense during the first half of 2012 was $319.1 million compared with $209.1 million in the first half of 2011. The increase in the income tax expense in the first half of 2012 was mainly due to a remeasurement of the deferred tax liability as a result of an increase in the Ghanaian corporate income tax rate from 25% to 35%, which was enacted in the first quarter of 2012. Excluding the impact of the increase in the Ghanaian corporate income tax rate from 25% to 35%, the Company’s effective tax rate for the first half of 2012 was 39.7% compared with 27.7% for the same period in 2011, with the change mainly due to income mix and net foreign exchange on translation of tax basis and deferred income taxes within income tax expense, and a lower 2011 effective tax rate as a result of the previously mentioned tax free gain on the sale of our investment in Harry Winston.
 
Adjusted net earnings from continuing operations attributed to common shareholders was $352.3 million, or $0.31 per share, for the first six months of 2012 compared with $394.2 million, or $0.35 per share, for the same period in 2011. The 11% decrease in adjusted net earnings from continuing operations attributed to common shareholders was mainly due to lower operating earnings as discussed above.
 
Net cash flow of continuing operations provided from operating activities during the first half of 2012 was $453.9 million compared with $687.2 million during the same period in 2011, with the change largely due to a decrease in margins and an increase in inventory and receivables, offset to some extent by an increase in payables.
 
The adjusted operating cash flow from continuing operations during the first six months of 2012 decreased to $591.2 million from $795.5 million, mainly due to the decrease in margins as discussed above.
 
Consolidated production cost of sales from continuing operations per equivalent ounce sold was 34% higher in the first half of 2012 compared with the second quarter of 2011, largely due to lower gold equivalent ounces sold combined with increases in labour, energy, consumables and other production costs across the Company’s operations.
 
 
 
 
 
On May 29, 2012, Kinross announced that it had entered into a purchase and sale agreement to sell its 50% interest in the Crixás gold mine, to a subsidiary of AngloGold Ashanti Ltd. The sale closed on June 28, 2012 and Crixás has been reclassified as a discontinued operation in the current and comparative periods. Gold equivalent ounces produced and sold at Crixás in the first six months of 2012 were 30,994 and 32,764, respectively, which were higher compared with 30,251 and 29,784 gold equivalent ounces produced and sold, respectively, during the first six months of 2011. The increase was primarily due to the higher tonnes processed.  Crixás metal sales of $53.7 million in the first six months of 2012 were 25% higher compared with $43.1 million in the first six months of 2011 due to an increase in gold equivalent ounces sold and higher metal prices realized. Net earnings from Crixás during the first six months of 2012 were $43.9 million, inclusive of an after-tax gain on disposal of $33.8 million.
 
 
 
 
 

 
2.
IMPACT OF KEY ECONOMIC TRENDS

Kinross’ 2011 Annual MD&A contains a discussion of key economic trends that affect the Company and its financial statements. Included in this MD&A is an update reflecting significant changes since the preparation of the 2011 Annual MD&A.

Price of Gold
 
The price of gold is the largest single factor in determining profitability and cash flow from operations, therefore, the financial performance of the Company has been, and is expected to continue to be, closely linked to the price of gold. During the second quarter of 2012, the average price of gold was $1,609 per ounce, with gold trading between a range of $1,540 and $1,678 per ounce based on the London PM Fix gold price. This compares to an average of $1,506 per ounce during the second quarter of 2011, with a low of $1,418 and a high of $1,552 per ounce. During the second quarter of 2012, Kinross realized an average price from continuing operations of $1,568 per ounce compared with $1,448 for the corresponding period in 2011. For the first six months of 2012, the price of gold averaged $1,651 per ounce compared with $1,445 per ounce in the same period in 2011.  In the first six months of 2012 Kinross realized an average price of $1,605 per ounce compared with an average price realized of $1,386 per ounce in the first six months of 2011.
 
The Company’s gold hedges that were acquired with the Bema Gold Corporation (“Bema”) acquisition reduced the average price realized by $34 and $42 per ounce during the three and six months ended June 30, 2012, respectively.  The Company had entered into offsetting gold purchase contracts in 2010 and in early 2011 to neutralize the impact of all remaining gold forward sales contracts, resulting in gold production being 100% exposed to spot gold price subsequent to dates these purchase contracts were entered into.  During the third quarter of 2011, the Company closed out and early settled all outstanding gold forward sales and purchase contracts. Mark-to-market losses on those gold forward sales contracts incurred up to the dates the offsetting purchase contracts were entered into impacted metal sales (and the average realized gold price) for the three and six months ended June 30, 2012. Metal sales subsequent to June 30, 2012 will no longer be impacted by such losses.

Cost Pressures

The Company’s profitability has been impacted by industry wide cost pressures on development and operating costs with respect to labour, energy and consumables in general. Since mining is generally an energy intensive activity, especially in open pit mining, energy prices can have a significant impact on operations. In order to mitigate the impact of higher consumable prices, the Company continues to focus on continuous improvement by extending the life of its property, plant and equipment and promoting a more efficient use of materials and supplies in general.  The Company has hedged a portion of its energy requirements – see Section 6 for details.
 
Currency Fluctuations

At the Company’s non-U.S. mining operations and exploration activities, which are located in Brazil, Chile, Ecuador, Ghana, Mauritania, the Russian Federation and Canada, a portion of operating costs and capital expenditures are denominated in their respective local currencies. During the three and six months ended June 30, 2012 , the US dollar, on average, was stronger relative to the Russian rouble, Canadian dollar, Brazilian real, Chilean peso, Ghanaian Cedi and Mauritanian ouguiya compared with the same periods in 2011. As at June 30, 2012, the US dollar was stronger compared with the spot exchange rates at December 31, 2011 relative to the Russian rouble, Brazilian real, Ghanaian Cedi and Mauritanian ouguiya, and weaker relative to the Canadian dollar and Chilean peso.  The Company has hedged a portion of its foreign currency exposure – see Section 6 for details.

 
 
 

3.
OUTLOOK

The forward-looking information contained in this section is subject to the risk factors and assumptions contained in the Cautionary Statement on Forward-Looking Information included with this MD&A.
 
Unless otherwise stated ‘‘attributable’’ production includes only Kinross’ share of Chirano production (90%). Production cost of sales per attributable gold equivalent ounce is defined as production cost of sales as per the consolidated financial statements divided by the number of gold equivalent ounces sold, reduced for Chirano (10%) sales attributable to third parties.
 
Approximately 60%-70% of the Company’s costs are denominated in US dollars.
 
A 10% change in foreign exchange could result in an approximate $5 impact in production cost of sales per ounce1.
 
A $10 per barrel change in the price of oil could result in an approximate $2 impact on production cost of sales per ounce.
 
The impact on royalties of a $100 change in the gold price could result in an approximate $4 impact on production cost of sales per ounce.

Operational Outlook
 
Due to the disposition of Kinross’ 50% interest in Crixás on June 28, 2012, the Company’s share of Crixás’ full-year forecast, including production of approximately 70,000 gold equivalent ounces, has been removed from the consolidated 2012 production forecast. As a result, Kinross now expects to produce approximately 2.5 to 2.6 million gold equivalent ounces in 2012 from its continuing operations, compared with its previous 2012 production forecast of 2.6 to 2.8 million equivalent ounces.  The Company remains on track to be within its full-year 2012 production forecast range, excluding the adjustment in guidance due to the disposition of its interest in Crixás. On a regional basis, the Company has also revised its production forecast from continuing operations. Forecast increases in production in North America and Russia are expected to offset a forecast reduction in West Africa, while South America’s forecast production has been adjusted to reflect the sale of Crixás.
 
The Company has revised its by-product production guidance from continuing operations for 2012. The revised production forecast is based on forecast gold production of 2.35 to 2.45 million ounces and forecast silver production of 9.0 to 9.5 million ounces.
 
Kinross has revised its forecast full-year production cost of sales, which are now expected to be in the range of $690 to $725 per gold equivalent ounce from continuing operations compared with the previous forecast range of $670 to $715, as a result of higher expected production cost of sales per ounce in West Africa and South America.  Material assumptions used for the updated production cost of sales forecast are the same as previously disclosed assumptions for the gold and oil price. The silver price assumption has changed to $27 per ounce for the second half of 2012, compared with the previous assumption of $30 per ounce. Assumptions for foreign exchange rates have also remained the same, except for the Brazilian real, Ghanaian cedi and the Euro, which are as follows for the second half of 2012:
 
•      2.00 Brazilian reais to the U.S. dollar, compared with 1.75 Brazilian reais to the U.S. dollar
 
•      1.90 Ghanaian cedi to the U.S. dollar, compared with 1.60 Ghanaian cedi to the U.S. dollar
 
•      1.25 U.S. dollar to the Euro, compared with 1.35 U.S. dollar to the Euro.
 
Kinross has lowered its 2012 forecast of by-product production cost of sales per ounce from continuing operations to a range of $605 to $655 compared with the previously disclosed range of $620 to $665, mainly due to higher silver production from continuing operations in 2012.
 
The Company’s depreciation, depletion and amortization is forecast to be approximately $235 per gold equivalent ounce, compared with the previously-stated forecast of $200 per gold equivalent ounce, as a result of an increase in mineral interest depreciation.
 
Forecasted capital expenditures for 2012 remains unchanged at approximately $2.2 billion pending the outcome of the recently announced cost reduction initiative.
 
The 2012 forecast for exploration and business development expenses remains unchanged at $255 million.
 
Forecasted other operating costs for 2012 remains unchanged at approximately $70 million.
 
The 2012 forecast for general and administrative expense remains unchanged at $180 million.
 
The Company’s adjusted effective tax rate in 2012 is expected to be within the previously disclosed forecast range of 31% to 37%.
 
1 Refers to all of the currencies in the countries where the Company has mining operations, fluctuating simultaneously by 10% in the same direction, either appreciating or depreciating, taking into consideration the impact of hedging and the weighting of each currency within our consolidated cost structure.

 
 
 

4.
PROJECT UPDATES AND NEW DEVELOPMENTS

Capital and project optimization process
 
Kinross continues to advance its capital and project optimization process announced on January 16, 2012. Key findings to date include the identification of smaller-scale processing options for the Tasiast expansion and Lobo-Marte project, as discussed below. In addition, the Company is launching a cost reduction initiative, with the objective of reducing capital and operating costs across all operations and development projects.
 
Tasiast expansion project
 
As previously disclosed, Kinross has undertaken a review of project development alternatives to those included in the original Tasiast scoping study, with the objective of improving overall project economics and reducing capital cost and project execution risk.

The Company has studied numerous processing options at Tasiast, including the four options mentioned in the March 31, 2012 Tasiast technical report and variations on these, with the aim of identifying the optimum processing approach for the Tasiast orebody.

Based on this analysis, Kinross has elected to undertake a pre-feasibility study (“PFS”) for construction of a mid-sized, expandable CIL mill in the 30,000 tonne per day range, for purposes of comparison with a 60,000 tonne per day mill option.  The PFS is expected to be completed in the first quarter of 2013. In parallel, ongoing evaluation regarding mine planning and phasing options for a 60,000 tonne per day option will continue.  Heap leach testing is expected to be completed in the fourth quarter of 2012, and the results will be evaluated as part of the overall processing strategy, including a potential expansion of current dump leach production.

The case for a mid-sized, expandable CIL mill is based on the impact of industry-wide pressures on capital costs, and a better understanding of the Tasiast orebody and associated mine plan. Notwithstanding lower production in the initial years of operation, a staged approach to the Tasiast expansion could reduce initial capital costs and project execution risk, while delivering a rate of return comparable to constructing a larger initial mill.

If the Company ultimately selects a processing option or combination of options other than the current 60,000 tonne per day mill base case, including a substantially revised 60,000 tonne per day mill option, the Company will determine at that time whether an impairment test is required with respect to the carrying value of the Tasiast cash generating unit (“CGU”).  In accordance with IFRS, the Company would be required, as of the end of the quarterly reporting period in which such a selection is made, to conduct an impairment analysis of the Tasiast CGU if the economics of the selected processing option or combination of options appears to have an adverse effect on the recoverability of the carrying value of the CGU.  An impairment analysis would otherwise only be done as of the end of the fiscal year assuming an absence of other relevant indications of impairment prior to that time.

An update on Exploration activity at Tasiast is included in the “Exploration update” below.

Kinross has received approval from the Mauritanian government for the Phase 2 project Environmental Impact Assessment (“EIA”), which covers all proposed mining and processing activities that are expected to occur within the mine site boundary under various scenarios.
 
Dvoinoye
 
Construction of the Dvoinoye project progressed well through the second quarter and, as previously disclosed, is scheduled to deliver first ore to the upgraded Kupol mill in the second half of 2013. Underground development is 37% complete and progressing slightly ahead of plan with 1,400 metres completed during the second quarter of 2012. Total underground development has passed 3,700 metres since development began in 2011.
 
Construction of surface infrastructure and facilities has continued as planned and is 22% complete. Expansion of the temporary camp to 400 beds was completed successfully and now accommodates all construction, underground and exploration personnel. The 365-bed permanent camp foundations are near completion and construction of the facility has begun.
 
Construction of the all-season road between Dvoinoye and Kupol has progressed well, with 51 kilometres of the total 84 kilometres now complete. The design and procurement of a single river bridge crossing is currently underway and installation is scheduled after the forthcoming winter period. All necessary permits for the current scope of underground development and construction activities are in place.

Fruta del Norte
 
Negotiations with the Ecuadorean government on an enhanced economic package at Fruta Del Norte (“FDN”) are progressing, with the objective of reaching balanced agreements on exploitation and investment protection for the project. Continued spending on development at FDN will depend on successfully concluding such agreements.
 
In July, Ecuador’s Ministry of Environment approved the EIA for construction and operation of the underground mine at FDN.  The Ministry review of the EIA for the processing plant is continuing.
 
 
 
 
 
 
Lobo-Marte

Kinross has completed a review to identify possible project optimization options at Lobo-Marte. Given industry-wide pressure on capital costs, the Company is considering smaller project options to those envisaged in the original pre-feasibility study, with the aim of reducing initial capital requirements and project execution risk. The Company is limiting capital spending at Lobo-Marte to further project study and permitting. Project permitting continues and is expected to be completed in the fourth quarter of 2012.

Other projects
 
Construction of the Paracatu fourth ball mill continues to advance on schedule and the project remains on target to be operational in the third quarter of 2012.
 
The Maricunga SART (Sulphidization, Acidification, Recycling and Thickening) plant was completed on schedule in the second quarter of 2012 and commissioning is proceeding.

Exploration update
 
Total exploration expenditures for the second quarter of 2012 were $66.2 million, including $54.2 million for expensed exploration and $12.0 million for capitalized exploration. Exploration expenditures for the same period in 2011 totaled $47.8 million.
 
In the first six months of 2012, total exploration expenditures were $114.5 million, including $97.4 million for expensed exploration and $17.1 million for capitalized exploration. Exploration expenditures for the same period in 2011 totaled $89.9 million.
 
Kinross was active on more than 25 mine site, near-mine and greenfields initiatives in the second quarter of 2012, with drilling across all projects totalling 372,752 metres during the first six months of 2012. Highlights of the second quarter exploration program include:

 
·
Tasiast: In the second quarter of 2012, exploration drilling at Tasiast focused on step-out and district drilling. One core and eight reverse circulation (“RC”) rigs were in operation throughout the second quarter, drilling a total of 1,062 holes for 112,472 metres. Near the mine, approximately 7,059 metres were drilled, testing for extensions of mineralization below the West Branch-Piment pit and Prolongation pit. Assay results from deep drilling have returned encouraging intercepts at Prolongation and West Branch South.

Outside of the eight kilometre mine corridor, 42 core holes and 986 RC holes were completed at various district targets totalling approximately 104,809 metres. The majority of this work was directed at targets within the Aouéouat area, ten kilometres north of the Tasiast processing facility. Drilling was completed on 400 metre spaced sections along the Tasiast shear zone resulting in the identification of five new target areas. Preliminary results are encouraging with gold mineralization encountered above the base of oxidation on most drill fences.

 
·
La Coipa: 78 holes were drilled at La Coipa for a total of 28,150 metres during the second quarter of 2012. The majority of the work was completed on the Compañia Minera La Coipa Joint Venture property (75% Kinross) where drilling continued to delineate the zone of oxide mineralization at Pompeya. Initial step-out drilling in the vicinity of Pompeya returned highly encouraging results of a similar mineralization style 250 metres southeast of the main deposit.

Drilling in the district tested the Catalina target and returned encouraging oxide mineralization 750 metres southeast of Pompeya. Infill drilling at Pompeya is expected to be complete by the end of August 2012. The rigs will be deployed to follow-up step-out results towards the end of the third quarter and into the fourth quarter of 2012.
 
 
 
 
 
Recent transactions
 
Sale of Crixás

In line with Kinross’ strategy of portfolio optimization and focusing its resources on the Company’s core operations, the Company announced on May 29, 2012, that it had, through one of its subsidiaries, Newinco Comercio e Participacoes Ltda., entered into a purchase and sale agreement to sell all of its shares in Mineracao Serra Grande S.A., which held Kinross’ 50% interest in the Crixás gold mine, to AngloGold Ashanti Brazil Mineracao Ltda., a subsidiary of AngloGold Ashanti Ltd.
 
Kinross originally acquired its 50% interest in the Crixás mine as part of the TVX Gold acquisition on January 31, 2003. The transaction closed on June 28, 2012, and Kinross received gross proceeds of $220.0 million, and recognized an after-tax gain on disposal of $33.8 million.

Other Developments
 
New Chief Executive Officer appointed

Kinross appointed J. Paul Rollinson as Chief Executive Officer and a member of the Board of Directors, effective August 1, 2012.  Mr. Rollinson replaced Tye W. Burt.

Board of Directors update

George F. Michals has retired from the Kinross Board of Directors. Mr. Michals served on the Kinross Board since 2003.

 
 
 
 
5.
CONSOLIDATED RESULTS OF OPERATIONS

Operating Highlights
 
 
                
(in millions, except ounces and gold price)
 
Three months ended June 30,
Six months ended June 30,
       
2012
2011
  Change
% Change
2012
2011
  Change
 % Change
 
Operating Statistics
                
 
Total gold equivalent ounces (a), (d)
                
     
Produced (b)
     654,243
     696,631
     (42,388)
(6%)
  1,266,081
  1,397,110
   (131,029)
(9%)
     
Sold (b)
     656,447
     704,447
     (48,000)
(7%)
  1,285,952
  1,423,024
   (137,072)
(10%)
                       
 
Gold equivalent ounces from continuing operations (a),(c)
        
     
Produced (b)
     639,138
     681,193
     (42,055)
(6%)
  1,235,087
  1,366,859
   (131,772)
(10%)
     
Sold (b)
     640,836
     688,282
     (47,446)
(7%)
  1,253,188
  1,393,240
   (140,052)
(10%)
                       
 
Total attributable gold equivalent ounces (a), (d)
            
     
Produced (b)
     647,877
     676,245
     (28,368)
(4%)
  1,252,124
  1,319,102
     (66,978)
(5%)
     
Sold (b)
     650,149
     685,823
     (35,674)
(5%)
  1,271,829
  1,346,611
     (74,782)
(6%)
                       
 
Attributable gold equivalent ounces from continuing operations (a),(c)
    
     
Produced (b)
     632,772
     660,807
     (28,035)
(4%)
  1,221,130
  1,288,851
     (67,721)
(5%)
     
Sold (b)
     634,538
     669,658
     (35,120)
(5%)
  1,239,065
  1,316,827
     (77,762)
(6%)
                       
 
Gold ounces - sold from continuing operations (c)
595,654
     605,729
     (10,075)
(2%)
  1,156,807
  1,226,923
     (70,116)
(6%)
 
Silver ounces - sold from continuing operations (000's) (c)
 2,475
         3,274
          (799)
(24%)
         5,128
         6,920
       (1,792)
(26%)
 
Average realized gold price ($/ounce) from continuing operations (c)
$ 1,568
 $      1,448
 $         120
8%
 $      1,605
 $      1,386
 $         219
16%
                       
 
Financial Data from Continuing Operations (c)
                
 
Metal sales
 $   1,006.7
 $      963.6
 $        43.1
4%
 $   2,014.8
 $   1,881.7
 $      133.1
7%
 
Production cost of sales
 $      464.9
 $      389.0
 $        75.9
20%
 $      917.5
 $      760.5
 $      157.0
21%
 
Depreciation, depletion and amortization
 $      157.0
 $      146.3
 $        10.7
7%
 $      299.7
 $      297.0
 $          2.7
1%
 
Operating earnings
 $      258.8
 $      352.8
 $      (94.0)
(27%)
 $      561.7
 $      677.9
  $    (116.2)
(17%)
  Net earnings from continuing operations attributed to common shareholders
$      115.8
 $      244.3
 $    (128.5)
(53%)
 $      215.4
 $      490.5
 $    (275.1)
(56%)
                       
 
(a)
Total includes 100% of Kupol and Chirano production.  "Attributable" includes Kinross' share of Kupol (75% up to April 27, 2011, 100% thereafter) and Chirano (90%) production.
 
(b)
"Gold equivalent ounces" include silver ounces produced and sold converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period. The ratio for the second quarter of 2012 was 54.77:1 (2011 - 39.67:1). The ratio for the first six months of 2012 was 53.17:1 (2011 - 41.47:1).
 
(c)
The comparative figures have been recast to exclude Crixás results due to its disposal.
 
(d)
  
The total gold equivalent ounces and total attributable gold equivalent ounces include Crixás.

 
 
 

Operating Earnings (Loss) by Segment
 
                                             
                                                   
       Three months ended June 30,
Six months ended June 30,
  
(in millions)
  
2012
    
2011
    
Change
    
% Change
    
2012
    
2011
    
Change
    
% Change
  
                                                   
Operating segments (c)
                                                
 
Fort Knox
   $ 49.3     $ 45.2     $ 4.1       9 %   $ 90.0     $ 79.0     $ 11.0       14 %
 
Round Mountain
     41.8       29.4       12.4       42 %     69.8       47.9       21.9       46 %
 
Kettle River-Buckhorn
     20.5       29.7       (9.2 )     (31 %)     45.1       56.6       (11.5 )     (20 %)
 
Kupol(a)
     119.4       133.1       (13.7 )     (10 %)     215.6       253.1       (37.5 )     (15 %)
 
Paracatu
     62.9       50.3       12.6       25 %     128.9       111.3       17.6       16 %
 
La Coipa
     3.3       21.5       (18.2 )     (85 %)     25.7       51.8       (26.1 )     (50 %)
 
Maricunga
     48.4       62.2       (13.8 )     (22 %)     113.3       113.0       0.3       0 %
 
Tasiast
     (24.4 )     18.6       (43.0 )     (231 %)     (30.5 )     44.8       (75.3 )     (168 %)
 
Chirano
     10.5       26.4       (15.9 )     (60 %)     44.6       48.4       (3.8 )     (8 %)
Non-operating segments
                                                                
 
Fruta del Norte
     (0.7 )     (0.6 )     (0.1 )     (17 %)     (1.5 )     (2.2 )     0.7       (32 %)
 
Corporate and Other(a),(b)
     (72.2 )     (63.0 )     (9.2 )     (15 %)     (139.3 )     (125.8 )     (13.5 )     11 %
 
Total
   $ 258.8     $ 352.8     $ (94.0 )     (27 %)   $ 561.7     $ 677.9     $ (116.2 )     (17 %)
Discontinued operation
                                                                
 
Crixás
   $ 6.3     $ 5.2     $ 1.1       21 %   $ 16.6     $ 11.0     $ 5.6       51 %
                                                                   
(a)
As of December 31, 2011, Dvoinoye was reclassified into the Kupol segment. The comparative figures have been reclassified to conform to the 2012 segment presentation.
  
(b)
"Corporate and Other" includes operating costs which are not directly related to individual mining properties such as general and administrative expenditures, gains and losses on disposal of assets and investments, and other costs relating to non-operating assets (Lobo-Marte and White Gold).
  
(c)
Crixás results for the current and prior periods are excluded due to its disposal.
          

 
 
 

Mining operations

Fort Knox (100% ownership and operator) – USA
        Three months ended June 30,
Six months ended June 30,
  
     
2012
    
2011
    
Change
    
% Change
    
2012
    
2011
    
Change
    
% Change
  
Operating Statistics
                                                
Tonnes ore mined (000's)
     5,115       708       4,407       622 %     10,134       3,177       6,957       219 %
Tonnes processed (000's) (a)
     13,084       10,000       3,084       31 %     17,240       13,466       3,774       28 %
Grade (grams/tonne)(b)
     0.51       0.59       (0.08 )     (14 %)     0.49       0.62       (0.13 )     (21 %)
Recovery(b)
     84.6 %     79.4 %     5.2 %     7 %     84.3 %     77.9 %     6.4 %     8 %
Gold equivalent ounces:
                                                                
 
 Produced
     71,952       77,727       (5,775 )     (7 %)     133,668       142,774       (9,106 )     (6 %)
 
 Sold
     71,978       77,269       (5,291 )     (7 %)     132,343       141,935       (9,592 )     (7 %)
                                                                   
Financial Data (in millions)
                                                                
Metal sales
   $ 116.6     $ 117.4     $ (0.8 )     (1 %)   $ 219.3     $ 207.1     $ 12.2       6 %
Production cost of sales
     54.5       52.4       2.1       4 %     106.5       93.0       13.5       15 %
Depreciation, depletion and amortization
     11.3       17.2       (5.9 )     (34 %)     20.4       32.2       (11.8 )     (37 %)
        50.8       47.8       3.0       6 %     92.4       81.9       10.5       13 %
Exploration and business development
     1.5       2.5       (1.0 )     (40 %)     2.4       2.8       (0.4 )     (14 %)
Other
       -       0.1       (0.1 )     (100 %)     -       0.1       (0.1 )     (100 %)
Segment operating earnings
   $ 49.3     $ 45.2     $ 4.1       9 %   $ 90.0     $ 79.0     $ 11.0       14 %
                                                                   
                                                                   
(a)
Includes 9,632,000 and 10,547,000 tonnes placed on the heap leach pad during the three and six months ended June 30, 2012, respectively, compared with 6,552,000 and 6,916,000 tonnes, during the corresponding periods of 2011.
  
(b)
Amount represents mill grade and recovery only. Ore placed on the heap leach pad had an average grade of 0.33 grams per tonne for both the three and six months ended June 30, 2012, compared with 0.37 grams per tonne for the three and six months ended June 30, 2011. Due to the nature of heap leach operations, point-in-time recovery rates are not meaningful.
  
 
Second quarter 2012 vs. Second quarter 2011

Tonnes of ore mined increased to 5,115,000 tonnes in the second quarter of 2012 from 708,000 tonnes in the second quarter of 2011 as a result of planned mine sequencing. Tonnes of ore processed were 31% higher in the second quarter of 2012 compared with the second quarter of 2011 due primarily to an increase in tonnage placed on the leach pad. The decline in gold grades by 14% during the second quarter of 2012 compared with the same period in 2011 was a result of planned increased processing of lower grade stockpile ore placed on the heap leach while development activities at phase 7 continue. Recoveries were higher in the second quarter of 2012 compared with the same period in 2011 due to several initiatives recently undertaken, including water management, reagent management and carbon strip scheduling. Gold equivalent ounces produced were 7% lower in the second quarter of 2012 compared with the second quarter of 2011 mainly due to the lower gold grades, offset to some extent by an increase in recoveries and tonnes processed.
 
Metal sales decreased by 1% in the second quarter of 2012 compared with the second quarter of 2011 due to a 7% decline in gold equivalent ounces sold, offset largely by an increase in metal prices realized.  Production cost of sales increased by 4% in the second quarter of 2012 compared with the same period in 2011, largely due to higher input costs relating to labour and energy.  Depreciation, depletion and amortization were 34% lower relative to the second quarter of 2011 due primarily to the transition between phase 6 and phase 7, lower gold equivalent ounces sold, and an increase in reserves at December 31, 2011.

First six months of 2012 vs. First six months of 2011

Tonnes of ore mined increased by 219% in the first six months of 2012 compared with the first six months of 2011 due to planned mine sequencing. Tonnes of ore processed increased by 28% mainly due to an increase in tonnage placed on the leach pad. Gold grades were 21% lower during the first six months of 2012 compared with the first six months of 2011 as a result of planned increased processing of lower grade stockpile ore placed on the heap leach while development activities at phase 7 continue. Recoveries were higher in the first six months of 2012 compared with the same period in 2011 due to several initiatives undertaken by management during the first quarter of 2012, including water management, reagent management and carbon strip scheduling.
 
Gold equivalent ounces produced declined by 6% in the first six months of 2012 compared with the same period of 2011 due to an increase in processing of lower grade ore, offset to some extent by an increase in recoveries and tonnes processed.
 
Metal sales were 6% higher in the first six months of 2012 due to increased metal prices realized, offset to some degree by a 7% decline in gold equivalent ounces sold.  Production cost of sales increased by 15% during the first six months of 2012 compared with the first six months of 2011, largely due to higher labour and energy costs.  Depreciation, depletion and amortization were 37% lower in the first six months of 2012 due to the transition between phase 6 and phase 7, lower gold equivalent ounces sold and an increase in reserves at December 31, 2011.

 
 

 
Round Mountain (50% ownership and operator; Barrick 50% ownership) – USA

       Three months ended June 30, Six months ended June 30,  
     
2012
    
2011
    
Change
      % Change  
2012
    
2011
    
Change
  
% Change (c)
  
Operating Statistics(b)
                                              
Tonnes ore mined (000's)(a)
     5,186       7,082       (1,896 )     (27 %)     11,426       13,318       (1,892 )   (14 %)
Tonnes processed (000's)(a),(b)
     4,674       6,960       (2,286 )     (33 %)     9,796       12,728       (2,932 )   (23 %)
Grade (grams/tonne)(b),(c)
     0.82       0.99       (0.17 )     (17 %)     0.87       0.95       (0.08 )   (8 %)
Recovery(b)
     73.7 %     75.6 %     (1.9 %)     (3 %)     75.7 %     73.4 %     2.3 %   3 %
Gold equivalent ounces:
                                                              
 
 Produced
     53,147       47,151       5,996       13 %     97,905       89,272       8,633     10 %
 
 Sold
     52,433       46,941       5,492       12 %     95,984       88,496       7,488     8 %
                                                                 
Financial Data (in millions)
                                                              
Metal sales
   $ 84.9     $ 71.4     $ 13.5       19 %   $ 158.9     $ 129.5     $ 29.4     23 %
Production cost of sales
     34.7       34.7       -       0 %     71.9       67.6       4.3     6 %
Depreciation, depletion and amortization
     8.4       7.2       1.2       17 %     16.2       13.8       2.4     17 %
        41.8       29.5       12.3       42 %     70.8       48.1       22.7     47 %
Exploration and business development
     -       0.1       (0.1 )     (100 %)     1.0       0.2       0.8  
nm
  
Segment operating earnings
   $ 41.8     $ 29.4     $ 12.4       42 %   $ 69.8     $ 47.9     $ 21.9     46 %
                                                                 
(a)
Tonnes of ore mined/processed represent 100%. Includes 3,752,000 and 8,062,000 tonnes placed on the heap leach pad during the three and six months ended June 30, 2012, respectively, compared with 6,144,000 and 11,122,000 tonnes placed on the heap leach pad during the three and six months ended June 30, 2011.
  
(b)
The presentation has been amended to reflect mill grade and recovery only, with heap leach grade disclosed separately below, rather than a blended rate for mill and heap leach grades. Ore placed on the heap leach pad had an average grade of 0.43 and 0.45 grams per tonne during the three and six months ended June 30, 2012, respectively, compared with 0.42 and 0.44 grams per tonne, for the three and six months ended June 30, 2011, respectively. Due to the nature of heap leach operations, point-in-time recovery rates are not meaningful. In addition, the presentation has been amended to exclude tonnes transferred between heap leach pads.
  
(c)
"nm" means not meaningful.
                                                        
 
Second quarter 2012 vs. Second quarter 2011

Tonnes of ore mined in the second quarter of 2012 was 27% lower compared with the same period in 2011 due to planned mine sequencing. Tonnes of ore processed declined by 33% in the second quarter of 2012 compared with the second quarter of 2011 due to a decrease in tonnes of ore mined, and as a result, a decrease in tonnage placed on the heap leach pads.  Grades declined by 17% during the second quarter of 2012 compared with the second quarter of 2011 due to planned mine sequencing. Gold equivalent ounces produced were higher by 13% in the second quarter of 2012 compared with the second quarter of 2011, primarily due to improved leach performance and a slightly higher average grade of ore placed on heap leach pads, offset to some extent by a decrease in the tonnage processed.
 
Metal sales increased by 19% in the second quarter of 2012 compared with the second quarter of 2011 due to higher gold prices realized and an increase in gold equivalent ounces sold.  Depreciation, depletion and amortization were 17% higher than in the second quarter of 2011, primarily due to the increase in gold equivalent ounces sold.
 
First six months of 2012 vs. First six months of 2011

Tonnes of ore mined and processed during the first six months of 2012 were 14% and 23% lower, respectively, compared with the first six months of 2011 due to planned mine sequencing.  Grades were 8% lower in the first six months of 2012 compared with the first six months of 2011 due to planned mine sequencing.  Gold equivalent ounces produced during the first six months of 2012 were 10% higher compared with the same period in 2011, largely due to improved leach performance and also a result of higher grade ore being placed on the heap leach pad, offset to some extent by a decrease in tonnes processed.
 
Metal sales were 23% higher compared with the first six months of 2011 due to higher metal prices and an increase in gold equivalent ounces sold.  Production cost of sales during the first six months of 2012 increased by 6% compared with the first six months of 2011, primarily due to higher reagent, labour and royalty costs.  Depreciation, depletion and amortization increased by 17% in the first six months of 2012, primarily due to the increase in gold equivalent ounces sold.

 
 
 

Kettle River–Buckhorn (100% ownership and operator) – USA

     Three months ended June 30,  Six months ended June 30,  
   
2012
    
2011
    
Change
      % Change  
2012
    
2011
    
Change
    
% Change
  
Operating Statistics
                                                
Tonnes ore mined (000's)
     93       98       (5 )     (5 %)     204       206       (2 )     (1 %)
Tonnes processed (000's)
     111       104       7       7 %     223       210       13       6 %
Grade (grams/tonne)
     11.52       14.77       (3.25 )     (22 %)     12.16       15.03       (2.87 )     (19 %)
Recovery
     91.6 %     89.2 %     2.4 %     3 %     90.5 %     88.6 %     1.9 %     2 %
Gold equivalent ounces:
                                                                
 Produced
     35,985       46,237       (10,252 )     (22 %)     78,603       92,089       (13,486 )     (15 %)
 Sold
     40,354       45,442       (5,088 )     (11 %)     79,675       93,071       (13,396 )     (14 %)
                                                                 
Financial Data (in millions)
                                                                
Metal sales
   $ 64.1     $ 68.9     $ (4.8 )     (7 %)   $ 131.1     $ 135.3     $ (4.2 )     (3 %)
Production cost of sales
     20.5       18.3       2.2       12 %     39.5       36.2       3.3       9 %
Depreciation, depletion and amortization
     18.2       20.0       (1.8 )     (9 %)     37.1       41.8       (4.7 )     (11 %)
      25.4       30.6       (5.2 )     (17 %)     54.5       57.3       (2.8 )     (5 %)
Exploration and business development
     5.1       1.7       3.4       200 %     9.6       2.5       7.1       284 %
Other
     (0.2 )     (0.8 )     0.6       75 %     (0.2 )     (1.8 )     1.6       89 %
Segment operating earnings
   $ 20.5     $ 29.7     $ (9.2 )     (31 %)   $ 45.1     $ 56.6     $ (11.5 )     (20 %)
 
Second quarter 2012 vs. Second quarter 2011

Tonnes of ore mined declined in the second quarter of 2012 by 5% compared with the second quarter of 2011, due to differences in mine sequencing.  Tonnes of ore processed increased by 7% in the second quarter of 2012 compared with the same period in 2011 to compensate for the lower planned grade.  Gold equivalent ounces produced in the second quarter of 2012 were 22% lower compared with 2011, primarily due to lower gold grades, offset to some extent by higher recoveries and an increase in tonnes processed. Gold equivalent ounces sold in the second quarter of 2012 decreased by 11% compared with the same period in 2011, primarily due to a decline in gold equivalent ounces produced and the timing of sales. Gold equivalent ounces sold in the second quarter of 2012 exceeded production due to timing of shipments.
 
Metal sales were 7% lower in the second quarter of 2012 compared with the second quarter of 2011 mainly due to the decline in gold equivalent ounces sold, offset to some extent by an increase in metal prices realized.  Production cost of sales increased by 12% in the second quarter of 2012 compared with the second quarter of 2011, primarily due to an increase in the tonnes of lower grade ore processed, offset to some extent by a decline in gold ounces sold.  Depreciation, depletion and amortization were 9% lower compared with 2011, primarily due to a decline in the gold equivalent ounces sold.

First six months of 2012 vs. First six months of 2011

Tonnes of ore processed were 6% higher in the first six months of 2012 compared with the first six months of 2011 to offset lower planned gold grades.  Gold equivalent ounces produced in the first six months of 2012 were 15% lower compared with the first six months of 2011, largely due to lower gold grades.
 
Metal sales were 3% lower in the first six months of 2012 compared with the same period in 2011, mainly due to a 14% decline in gold equivalent ounces sold, offset to some extent by an increase in metal prices realized.  Production cost of sales increased by 9% due to increases in labour, power and reagent costs as a result of processing additional lower grade ore.  Depreciation, depletion and amortization were 11% lower in the first six months of 2012 compared with the first six months of 2011, primarily due to the decrease in gold equivalent ounces sold.

 
 
 

Kupol (100% ownership and operator) – Russian Federation(a)

       Three months ended June 30,
 Six months ended June 30,
     
2012
2011 (d)
Change
  % Change (e)
2012
2011(d)
Change
% Change (e)
Operating Statistics
                
Tonnes ore mined (000's) (b)
           320
           354
            (34)
(10%)
           620
           735
          (115)
(16%)
Tonnes processed (000's) (b)
           329
           305
             24
8%
           639
           610
             29
5%
Grade (grams/tonne):
                
 
Gold
        12.23
        15.88
         (3.65)
(23%)
        12.01
        16.22
         (4.21)
(26%)
 
Silver
      187.49
      215.21
       (27.72)
(13%)
      179.89
      226.56
       (46.67)
(21%)
Recovery:
                
 
Gold
93.2%
93.7%
(0.5%)
(1%)
93.3%
94.1%
(0.8%)
(1%)
 
Silver
87.2%
84.0%
3.2%
4%
86.1%
84.0%
2.1%
3%
Gold equivalent ounces: (b),(c)
                
 
Produced
    149,214
    184,066
     (34,852)
(19%)
    276,184
    389,741
   (113,557)
(29%)
 
Sold
    156,716
    199,773
     (43,057)
(22%)
    283,451
    403,111
   (119,660)
(30%)
Silver ounces: (b)
                
 
Produced (000's)
        1,711
        1,660
             51
3%
        3,043
        3,694
          (651)
(18%)
 
Sold (000's)
        1,627
        1,852
          (225)
(12%)
        3,022
        3,746
          (724)
(19%)
                     
Financial Data (in millions)
                
Metal sales
 $     230.0
 $     239.7
 $        (9.7)
(4%)
 $     415.6
 $     465.3
 $      (49.7)
(11%)
Production cost of sales
          73.2
          69.1
            4.1
6%
        134.4
        134.6
           (0.2)
(0%)
Depreciation, depletion and amortization
          29.4
          37.0
           (7.6)
(21%)
          53.0
          76.5
         (23.5)
(31%)
     
        127.4
        133.6
           (6.2)
(5%)
        228.2
        254.2
         (26.0)
(10%)
Exploration and business development
            5.6
            0.5
            5.1
nm
          10.1
            0.6
            9.5
nm
Other
  
            2.4
               -
            2.4
100%
            2.5
            0.5
            2.0
nm
Segment operating earnings
 $     119.4
 $     133.1
 $      (13.7)
(10%)
 $     215.6
 $     253.1
 $      (37.5)
(15%)
                     
(a)
As of April 27, 2011, Kinross increased its ownership in Kupol from 75% to 100%.
(b)
Tonnes of ore mined/processed, ounces produced and sold represent 100% for all periods.
(c)
"Gold equivalent ounces" include silver ounces produced and sold converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period. The ratio for the second quarter of 2012 was 54.77:1 (2011 - 39.67:1). The ratio for the first six months of 2012 was 53.17:1 (2011 - 41.47:1).
(d)
As of December 31, 2011, Dvoinoye was reclassified into the Kupol segment. The comparative figures have been reclassified to conform to the 2012 segment presentation.
(e)
"nm" means not meaningful.

Second quarter 2012 vs. Second quarter 2011
 
Tonnes of ore mined were 10% lower in the second quarter of 2012 compared with the same period in 2011, largely due to the completion of open pit mining in the second half of 2011.  Tonnes of ore processed increased by 8% during the second quarter of 2012 compared with the second quarter of 2011 due to higher mill throughput. Grades in the second quarter of 2012 were lower than in the second quarter of 2011 consistent with plan.  Gold equivalent ounces produced declined by 19% compared with the second quarter of 2011 primarily due to the lower grades and a less favourable gold equivalent ratio, offset partly by increased tonnes processed. Gold equivalent ounces sold in the second quarter of 2012 exceeded production due to timing of shipments.
 
Metal sales were 4% lower in the second quarter of 2012 compared with the second quarter of 2011 as a result of lower gold equivalent ounces sold, offset to some extent by higher metal prices realized.  Production cost of sales increased by 6% in the second quarter of 2012 compared with the same period in 2011 mainly due to higher royalty and diesel costs, offset to some extent by lower gold equivalent ounces sold. Depreciation, depletion, and amortization declined by 21% due to a decline in the gold equivalent ounces sold and an increase in reserves.
 
 
 
First six months of 2012 vs. First six months of 2011

Tonnes of ore mined were 16% lower in the first six months of 2012 compared with the first six months of 2011 primarily due to the completion of open pit mining in the second half of 2011. Tonnes of ore processed increased by 5% during the first six months of 2012 compared with the first half of 2011 due to higher mill throughput. Grades were 26% lower than in the first six months of 2011 and in line with plan.  Gold equivalent ounces produced were 29% lower than in the first six months of 2011 primarily due to the lower grades and a less favourable gold equivalent ratio, offset partly by increased tonnes processed. Gold equivalent ounces sold in the first half of 2012 exceeded production due to timing of shipments.
 
Metal sales during the first six months of 2012 were 11% lower compared with the first six months of 2011 due to the lower gold equivalent ounces sold, offset to some extent by the higher metal prices realized.  Depreciation, depletion and amortization were 31% lower than during the first six months of 2011 due to an increase in the reserve base at December 31, 2011 combined with a decline in the gold equivalent ounces sold.

 
 
 
 
Paracatu (100% ownership and operator) – Brazil

        Three months ended June 30,
Six months ended June 30,
  
     
2012
    
2011
    
Change
      
% Change
  
2012
  
2011
  
Change
  
% Change(a)
  
Operating Statistics
                                          
Tonnes ore mined (000's)
     12,544       9,979       2,565       26 %     25,872     19,745     6,127     31 %
Tonnes processed (000's)
     12,988       10,014       2,974       30 %     25,898     19,752     6,146     31 %
Grade (grams/tonne)
     0.38       0.41       (0.03 )     (7 %)     0.36     0.41     (0.05 )   (12 %)
Recovery
     73.7 %     75.6 %     (1.9 %)     (3 %)     72.7 %   76.5 %   (3.8 %)   (5 %)
Gold equivalent ounces:
                                                          
 
 Produced
     118,419       99,893       18,526       19 %     223,037     200,320     22,717     11 %
 
 Sold
     118,389       95,773       22,616       24 %     228,916     203,730     25,186     12 %
                                                             
Financial Data (in millions)
                                                          
Metal sales
   $ 189.0     $ 144.2     $ 44.8       31 %   $ 376.3   $ 294.4   $ 81.9     28 %
Production cost of sales
     108.2       77.1       31.1       40 %     213.6     151.6     62.0     41 %
Depreciation, depletion and amortization
     19.2       14.3       4.9       34 %     33.8     28.7     5.1     18 %
        61.6       52.8       8.8       17 %     128.9     114.1     14.8     13 %
Exploration and business development
     0.3       0.1       0.2       200 %     0.6     0.1     0.5  
nm
  
Other
       (1.6 )     2.4       (4.0 )     (167 %)     (0.6 )   2.7     (3.3 )   (122 %)
Segment operating earnings
   $ 62.9     $ 50.3     $ 12.6       25 %   $ 128.9   $ 111.3   $ 17.6     16 %
                                                             
(a)
"nm" means not meaningful.
                                                          
 
Second quarter 2012 vs. Second quarter 2011

Tonnes of ore mined and processed in the second quarter of 2012 increased by 26% and 30%, respectively, compared with the second quarter of 2011, due to the increased processing capacity provided by the third ball mill. Gold grades were 7% lower in the second quarter of 2012 compared with the same period in 2011 due to planned mine sequencing. Gold equivalent ounces produced were 19% higher in the second quarter of 2012 compared with the same period in 2011 due to the higher processing levels, offset by the decline in grades and recoveries.

Metal sales were 31% higher in the second quarter of 2012 compared with the second quarter of 2011 due to an increase in metal prices realized and higher gold equivalent ounces sold.  Production cost of sales increased by 40% in the second quarter of 2012 compared with the same period in 2011, largely due to increases in processing levels and higher labour and maintenance costs. Depreciation, depletion and amortization were 34% higher compared with the second quarter of 2011 largely due to the increase in gold equivalent ounces sold.

First six months of 2012 vs. First six months of 2011

Tonnes of ore mined and processed were both higher by 31% compared with the first six months of 2011, mainly due to more favourable weather conditions, and the increased processing capacity provided by the third ball mill, which was commissioned in the second quarter of 2011.  Gold equivalent ounces produced and sold were higher than in the same period in 2011 due to an increase in processing levels, offset partially by declines in grades and recoveries.  Gold equivalent ounces sold for the first six months of 2012 exceeded production due to timing of shipments.
 
Metal sales increased by 28% in the first six months of 2012 compared with the same period in 2011 due to an increase in metal prices realized and an increase in gold equivalent ounces sold.  Production costs of sales increased by 41% in the first six months of 2012 compared with the first six months of 2011, primarily due to an increase in gold equivalent ounces sold and higher labour, power and maintenance costs.  Depreciation, depletion and amortization were 18% higher during the first six months of 2012 compared with the first six months of 2011, largely due to higher gold equivalent ounces sold.

 
 
 

La Coipa (100% ownership and operator) – Chile
 
       
Three months ended June 30,
 
Six months ended June 30,
     
2012
2011
Change
 % Change(b)
2012
2011
Change
% Change
Operating Statistics
                
Tonnes ore mined (000's)
           585
           541
             44
8%
           795
        1,133
          (338)
(30%)
Tonnes processed (000's)
        1,256
        1,131
           125
11%
        2,722
        2,207
           515
23%
Grade (grams/tonne):
                
 
Gold
          0.72
          0.72
              -
0%
          0.63
          0.78
         (0.15)
(19%)
 
Silver
        42.04
        58.85
       (16.81)
(29%)
        40.28
        67.03
       (26.75)
(40%)
Recovery:
                
 
Gold
76.8%
80.5%
(3.7%)
(5%)
77.1%
77.4%
(0.3%)
(0%)
 
Silver
45.6%
54.6%
(9.0%)
(16%)
48.3%
53.7%
(5.4%)
(10%)
Gold equivalent ounces: (a)
                
 
Produced
      36,113
      50,867
     (14,754)
(29%)
      73,853
    105,313
     (31,460)
(30%)
 
Sold
      30,325
      56,906
     (26,581)
(47%)
      74,037
    119,837
     (45,800)
(38%)
Silver ounces:
                
 
Produced (000's)
           770
        1,171
          (401)
(34%)
        1,690
        2,590
          (900)
(35%)
 
Sold (000's)
           659
        1,262
          (603)
(48%)
        1,759
        2,867
       (1,108)
(39%)
                     
Financial Data (in millions)
                
Metal sales
 $       48.0
 $       70.9
 $      (22.9)
(32%)
 $     122.3
 $     150.9
 $      (28.6)
(19%)
Production cost of sales
          35.7
          40.5
           (4.8)
(12%)
          80.2
          78.0
            2.2
3%
Depreciation, depletion and amortization
            6.2
            8.1
           (1.9)
(23%)
          10.7
          18.6
           (7.9)
(42%)
     
            6.1
          22.3
         (16.2)
(73%)
          31.4
          54.3
         (22.9)
(42%)
Exploration and business development
            2.7
            0.8
            1.9
nm
            5.6
            2.5
            3.1
124%
Other
  
            0.1
               -
            0.1
100%
            0.1
               -
            0.1
100%
Segment operating earnings
 $         3.3
 $       21.5
 $      (18.2)
(85%)
 $       25.7
 $       51.8
 $      (26.1)
(50%)
                     
(a)
"Gold equivalent ounces" include silver ounces produced and sold converted to a gold equivalent based on a ratio of the average spot market prices for the commodities for each period. The ratio for the second quarter of 2012 was 54.77:1 (2011 - 39.67:1). The ratio for the first six months of 2012 was 53.17:1 (2011 - 41.47:1).
(b)
"nm" means not meaningful.
  
 
Second quarter 2012 vs. Second quarter 2011

Tonnes of ore mined increased by 8% in the second quarter of 2012 compared with the second quarter of 2011 due to mine sequencing.  Tonnes of ore processed increased by 11% in the second quarter of 2012 compared with the second quarter of 2011 to address the reliance on lower grade stockpiled ore.  Gold equivalent ounces produced were lower by 29% in the second quarter of 2012 compared with the second quarter of 2011, primarily due to the lower silver grades and recoveries and a less favourable gold equivalent ratio. Gold equivalent ounces sold declined by 47% during the second quarter of 2012 compared with the same period in 2011 due to a decline in gold equivalent ounces produced and timing of sales.
 
Metal sales declined by 32% in the second quarter of 2012 compared with the second quarter of 2011 due to the decline in gold equivalent ounces sold, offset partly by an increase in metal prices realized.  Production cost of sales were 12% lower in the second quarter of 2012 compared with the second quarter of 2011, mainly due to a decline in gold equivalent ounces sold, offset to some extent by higher maintenance costs and increases in input costs, including labour and cyanide.  Depreciation, depletion and amortization were 23% lower than in the second quarter of 2011, primarily due to lower gold equivalent ounces sold as well as an increase in the proportion of processing from ore that was stockpiled at a lower rate of depreciation, offset partly by a decline in reserves at December 31, 2011.
 
 
 
 
 
First six months of 2012 vs. First six months of 2011

Tonnes of ore mined decreased by 30% in the first six months of 2012 compared with the first six months of 2011, primarily due to planned reliance on stockpiled ore.  Tonnes of ore processed during the first six months of 2012 were 23% higher compared with the first six months of 2011 as a result of the planned reliance on lower grade stockpiled ore.  Gold equivalent ounces produced decreased by 30% during the first six months of 2012 compared with the same period in 2011, mainly due to the lower grades and less favourable gold equivalent ratio, offset to some extent by an increase in tonnes processed. Gold equivalent ounces sold in the first six months of 2012 exceeded production due to timing of shipments.
 
Metal sales declined by 19% during the first six months of 2012 compared with the first six months of 2011 due to the decline in gold equivalent ounces sold, offset to some degree by the increase in metal prices realized.  Production cost of sales increased by 3% due to higher units costs related to the processing of a higher volume of lower grade stockpile ore, as well as higher maintenance, contractor, labour and power costs, offset largely by the decline in gold equivalent ounces sold.  Depreciation, depletion and amortization was lower by 42% in the first six months of 2012 compared with the first six months of 2011 largely due to lower gold equivalent ounces sold.
 
 
 
 

Maricunga (100% ownership and operator) – Chile

       Three months ended June 30,
Six months ended June 30,
      2012  2011  Change % Change(b)  2012  2011  Change  % Change (b)
Operating Statistics (a)
                
Tonnes ore mined (000's)
        3,808
        4,268
          (460)
(11%)
        7,382
        8,372
          (990)
(12%)
Tonnes processed (000's)
        3,487
        4,023
          (536)
(13%)
        7,501
        8,014
          (513)
(6%)
Grade (grams/tonne)
          0.65
          0.86
         (0.21)
(24%)
          0.66
          0.86
         (0.20)
(23%)
Gold equivalent ounces:
                
 
Produced
      60,841
      70,105
       (9,264)
(13%)
    124,830
    128,845
       (4,015)
(3%)
 
Sold
      61,367
      63,407
       (2,040)
(3%)
    130,430
    119,250
      11,180
9%
                     
Financial Data (in millions)
                
Metal sales
 $       98.6
 $       95.5
 $         3.1
3%
 $     213.9
 $     175.2
 $       38.7
22%
Production cost of sales
          44.5
          26.2
          18.3
70%
          88.2
          53.1
          35.1
66%
Depreciation, depletion and amortization
            5.5
            7.1
           (1.6)
(23%)
          11.8
            8.9
            2.9
33%
     
          48.6
          62.2
         (13.6)
(22%)
        113.9
        113.2
            0.7
1%
Exploration and business development
            0.2
               -
            0.2
100%
            0.4
            0.1
            0.3
nm
Other
  
               -
               -
               -
                 -
            0.2
            0.1
            0.1
100%
Segment operating earnings
 $       48.4
 $       62.2
 $      (13.8)
(22%)
 $     113.3
 $     113.0
 $         0.3
0%
                     
(a)
Due to the nature of heap leach operations, point-in-time recovery rates are not meaningful.
(b)
"nm" means not meaningful.
                

Second quarter 2012 vs. Second quarter 2011

Tonnes of ore mined were 11% lower in the second quarter of 2012 compared with the second quarter of 2011 due to mine sequencing. Tonnes of ore processed declined by 13% during the second quarter of 2012 compared with the same period in 2011, primarily due to the reduction in tonnes of ore mined and reduced availability of the crusher plant due to repair and maintenance. Gold equivalent ounces produced decreased by 13% compared with the second quarter of 2011, largely due to the decline in processing levels and planned decline in gold grades.
 
Metal sales increased by 3% in the second quarter of 2012 compared with the second quarter of 2011 due to an increase in gold prices realized, offset to some extent by the decline in gold equivalent ounces sold.  Production cost of sales increased by 70% in the second quarter of 2012 compared with the same period in 2011, mainly due to higher input costs incurred in processing lower grade ore and higher maintenance costs, offset partly by a decline in the gold equivalent ounces sold.  Depreciation, depletion and amortization declined 23% mainly due to the lower gold equivalent ounces sold.

First six months of 2012 vs. First six months of 2011
 
Tonnes of ore mined and processed in the first six months of 2012 were 12% and 6% lower, respectively, compared with the first six months of 2011 due to mine sequencing, geotechnical issues experienced at the Pancho pit during the first quarter of 2012, and reduced availability of the crusher plant due to repair and maintenance.  Gold equivalent ounces produced declined by 3% during the first six months of 2012 compared with the same period in 2011, largely due to the decline in processing levels and planned decline in gold grades.  During the first six months of 2012 gold equivalent ounces sold exceeded production due to timing of shipments.
 
Metal sales increased by 22% in the first six months of 2012 compared with the first six months of 2011 due to higher metal prices and an increase in gold equivalent ounces sold.  Production cost of sales were 66% higher than in the first six months of 2011 due to higher costs of inputs, such as reagents and fuel, incurred in processing lower grade ore, as well as higher maintenance, labour and contractor costs.  Depreciation, depletion and amortization increased by 33% during the first six months of 2012 compared with the same period in 2011 due to the higher gold equivalent ounces sold.

 
 
 
Tasiast (100% ownership and operator) – Mauritania

       Three months ended June 30,
 Six months ended June 30,
     
 
2012
 
2011
Change
 
% Change (c)
2012
2011
Change
% Change (c)
Operating Statistics
                
Tonnes ore mined (000's)
        5,636
        2,058
        3,578
174%
        7,419
        4,354
        3,065
70%
Tonnes processed (000's) (a)
        5,133
        1,990
        3,143
158%
        6,730
        4,194
        2,536
60%
Grade (grams/tonne) (b)
          1.74
          1.60
          0.14
9%
          1.72
          1.85
         (0.13)
(7%)
Recovery (b)
85.6%
91.2%
(5.6%)
(6%)
87.0%
89.4%
(2.4%)
(3%)
Gold equivalent ounces:
                
 
Produced
      49,807
      47,249
        2,558
5%
      87,441
      98,570
     (11,129)
(11%)
 
Sold
      46,296
      46,213
             83
0%
      87,123
      97,706
     (10,583)
(11%)
                     
Financial Data (in millions)
                
Metal sales
 $       74.0
 $       70.1
 $         3.9
6%
 $     143.4
 $     141.7
 $         1.7
1%
Production cost of sales
          44.5
          33.6
          10.9
32%
          80.4
          60.2
          20.2
34%
Depreciation, depletion and amortization
          19.9
          14.5
            5.4
37%
          33.7
          30.3
            3.4
11%
     
            9.6
          22.0
         (12.4)
(56%)
          29.3
          51.2
         (21.9)
(43%)
Exploration and business development
          28.1
            2.5
          25.6
nm
          50.0
            5.2
          44.8
nm
Other
  
            5.9
            0.9
            5.0
nm
            9.8
            1.2
            8.6
nm
Segment operating earnings (loss)
 $      (24.4)
 $       18.6
 $      (43.0)
(231%)
 $      (30.5)
 $       44.8
 $      (75.3)
(168%)
                     
(a)
Includes 4,477,000 and 5,480,000 tonnes placed on the dump leach pad during the second quarter and the first six months of 2012, respectively, compared with 1,311,000 and 2,828,000 tonnes placed on the dump leach pad during the second quarter and the first six months of 2011.
(b)
Amount represents mill grade and recovery only. Ore placed on the dump leach pad had an average grade of 0.47 and 0.49 grams per tonne during the second quarter and the first six months of 2012, respectively, compared with 0.55 and 0.61 grams per tonne, for the second quarter and the first six months of 2011, respectively. Due to the nature of dump leach operations, point-in-time recovery rates are not meaningful.
(c)
"nm" means not meaningful.
                

Second quarter 2012 vs. Second quarter 2011

Tonnes of ore mined increased by 174% in the second quarter of 2012 compared with the second quarter of 2011 due to planned mine sequencing and an increase in mine fleet equipment. Tonnes of ore processed were 158% higher in the second quarter of 2012 compared with the second quarter of 2011, primarily due to an increase in tonnes placed on the leach pad. Gold equivalent ounces produced were higher by 5% during the second quarter of 2012 compared with the second quarter of 2011 due primarily to an increase in mill grade and overall tonnes placed on the dump leach pad, offset partly by lower mill tonnes processed.
 
Metal sales increased by 6% in the second quarter of 2012 compared with the second quarter of 2011 due to an increase in metal prices realized.  Production cost of sales increased by 32% in the second quarter of 2012 compared with the same period in 2011 largely due to an increase in consumable, labour and maintenance costs associated with the increased mining activity and the related support activities such as camp and logistics.  Due to the nature of the West Branch ore body much of this ramp up activity was focused on mining low grade oxide material for the dump leach.  Depreciation, depletion and amortization increased by 37% compared with the second quarter of 2011 due to the higher depreciable asset base associated with expansion of the site, in particular the mine fleet and the ADR plant. The increase in exploration and business development costs during the second quarter of 2012 compared with the second quarter of 2011 was mainly due to an increase in exploration expenses.
 
First six months of 2012 vs. First six months of 2011

During the first six months of 2012, tonnes of ore mined increased by 70% compared with the first six months of 2011 as a result of planned mine sequencing and increase in mine fleet equipment. Tonnes of ore processed increased by 60% during the six months of 2012 compared with the same period in 2011 largely due to an increase in tonnes placed on the leach pad. Gold equivalent ounces produced and sold were lower by 11% during the first six months of 2012 compared with the same period in 2011 primarily due to lower mill tonnes processed, as a result of ore hardness, which more than offset the impact of the increase in tonnes delivered to the dump leach pad.
 
Metal sales during the first six months of 2012 increased slightly by 1% largely a result of an increase in metal prices realized, offset by a decline in gold equivalent ounces sold. Production cost of sales increased by 34% for the first six months of 2012 compared with the first six months of 2011 due to higher maintenance and consumable costs arising from the increase in mining activities combined with higher labour and energy costs. Depreciation, depletion and amortization were higher by 11% compared with the first six months of 2011 due to an increase in depreciable asset base associated with expansion of the site. The increase in exploration and business development costs during the first half of 2012 compared with the same period in 2011 was largely due an increase in exploration expenses.

 
 
 

Chirano (90% ownership and operator) – Ghana

       Three months ended June 30,
Six months ended June 30,
     
2012
2011
Change
% Change
2012
2011
Change
% Change
Operating Statistics
                
Tonnes ore mined (000's) (a)
        1,016
           882
           134
15%
        2,165
        1,710
           455
27%
Tonnes processed (000's) (a)
           802
           858
            (56)
(7%)
        1,655
        1,706
            (51)
(3%)
Grade (grams/tonne)
          2.70
          2.28
          0.42
18%
          2.84
          2.35
          0.49
21%
Recovery
92.0%
91.4%
0.6%
1%
92.4%
91.4%
1.0%
1%
Gold equivalent ounces: (a)
                
 
Produced
      63,660
      57,898
        5,762
10%
    139,566
    119,935
      19,631
16%
 
Sold
      62,978
      56,558
        6,420
11%
    141,229
    126,104
      15,125
12%
                     
Financial Data (in millions)
                
Metal sales
 $     101.5
 $       85.5
 $       16.0
19%
 $     234.0
 $     182.3
 $       51.7
28%
Production cost of sales
          49.1
          37.1
          12.0
32%
        102.8
          86.2
          16.6
19%
Depreciation, depletion and amortization
          36.9
          19.3
          17.6
91%
          78.7
          43.5
          35.2
81%
Impairment charges
               -
               -
               -
nm
               -
               -
               -
nm
     
          15.5
          29.1
         (13.6)
(47%)
          52.5
          52.6
           (0.1)
(0%)
Exploration and business development
            3.6
            1.9
            1.7
89%
            6.3
            3.3
            3.0
91%
Other
  
            1.4
            0.8
            0.6
75%
            1.6
            0.9
            0.7
78%
Segment operating earnings
 $       10.5
 $       26.4
 $      (15.9)
(60%)
 $       44.6
 $       48.4
 $        (3.8)
(8%)
                     
(a)
Tonnes of ore mined/processed, production and sales represents 100% for all periods.
 
Second quarter 2012 vs. Second quarter 2011

Tonnes of ore mined increased by 15% in the second quarter of 2012 compared with the same period in 2011 due to planned mine sequencing. Tonnes of ore processed were 7% lower in the second quarter of 2012 compared with the second quarter of 2011 due to lower mill throughput as a result of power reliability issues and reduced availability of processing equipment. Gold equivalent ounces produced were 10% higher in the second quarter of 2012 compared with the same period in 2011, primarily due to higher grade ore from the Akwaaba deposit, offset to some extent by a decline in the tonnes processed.
 
Metal sales increased by 19% in the second quarter of 2012 compared with the second quarter of 2011, due to an increase in both the gold equivalent ounces sold and an increase in realized metal prices.  Production cost of sales increased by 32% in the second quarter of 2012 compared with the same period in 2011, largely due to an increase in gold equivalent ounces sold combined with higher input costs relating to labour and power.  Depreciation, depletion and amortization were 91% higher than in the second quarter of 2011 due primarily to the higher gold equivalent ounces sold and a reduction in reserves.

First six months of 2012 vs. First six months of 2011

During the first six months of 2012, tonnes of ore mined had increased by 27% compared with the same period in 2011 due to planned mine sequencing.  Tonnes of ore processed were 3% lower in the first six months of 2012 compared with the first six months of 2011 due to lower mill throughput as a result of power related issues and reduced availability of processing equipment. Gold equivalent ounces produced were higher by 16% in the first six months of 2012 compared with the same period in 2011 due primarily to higher grade ore from the Akwaaba deposit.
 
Metal sales increased by 28% in the first six months of 2012 compared with the same period in 2011, due to an increase in both the gold equivalent ounces sold and an increase in realized metal prices.  Production cost of sales increased by 19% in the first six months of 2012 compared with the same period in 2011, largely due to an increase in gold equivalent ounces sold combined with higher input costs relating to labour and power.  Depreciation, depletion and amortization were 81% higher during the first six months of 2012 than in the first six months of 2011 due primarily to the higher gold equivalent ounces sold and a reduction in reserves.
 
 
 
Discontinued operations

Crixás

On May 29, 2012, Kinross announced that it had entered into a purchase and sale agreement to sell its 50% interest in the Crixás gold mine, to a subsidiary of AngloGold Ashanti Ltd. The sale closed on June 28, 2012. The gross proceeds of the sale totaled $220.0 million.
 
The results for the three and six month periods ended June 30, 2012 include the results of operations of Crixás to June 28, 2012.
 
      Three months ended June 30,   Six months ended June 30,
     
2012
    
2011
    
Change
      % Change(b)  
2012
    
2011
    
Change
    
% Change(b)
  
Operating Statistics
                                                
Tonnes ore mined (000's) (a)
     300       330       (30 )     (9 %)     586       586       -       0 %
Tonnes processed (000's) (a)
     302       312       (10 )     (3 %)     584       568       16       3 %
Grade (grams/tonne)
     3.43       3.35       0.08       2 %     3.62       3.58       0.04       1 %
Recovery
     91.3 %     92.7 %     (1.4 %)     (2 %)     91.2 %     92.6 %     (1.4 %)     (2 %)
Gold equivalent ounces:
                                                                
 
 Produced
     15,105       15,438       (333 )     (2 %)     30,994       30,251       743       2 %
 
 Sold
     15,611       16,165       (554 )     (3 %)     32,764       29,784       2,980       10 %
Financial data (in millions)
                                                                
Metal sales
   $ 25.2     $ 24.2     $ 1.0       4 %   $ 53.7     $ 43.1     $ 10.6       25 %
Operating expenses
     18.9       19.0       (0.1 )     (1 %)     37.1       32.1       5.0       16 %
Operating earnings
     6.3       5.2       1.1       21 %     16.6       11.0       5.6       51 %
Other expenses (income)
     (0.2 )     0.7       0.9       129 %     0.1       0.3       (0.2 )     (67 %)
Net earnings before disposal
     6.5       4.5       2.0       44 %     16.5       10.7       5.8       54 %
Income tax expense
     2.5       1.4       1.1       79 %     6.4       3.7       2.7       73 %
Net earnings before disposal - after tax
     4.0       3.1       0.9       29 %     10.1       7.0       3.1       44 %
Gain on sale of discontinued operations
     96.2       -       96.2       100 %     96.2       -       96.2       100 %
Income tax on sale of discontinued operations
     (62.4 )     -       (62.4 )     (100 %)     (62.4 )     -       (62.4 )     (100 %)
Net earnings from discontinued operations
   $ 37.8     $ 3.1     $ 34.7    
nm
     $ 43.9     $ 7.0     $ 36.9    
nm
  
                                                                   
(a)
Tonnes of ore mined/processed represents 100% of mine production for all periods.
          
(b)
"nm" means not meaningful.
                                                                
 
Gold equivalent ounces produced and sold in the second quarter of 2012 were 2% and 3% lower, respectively, relative to the second quarter of 2011, largely due to lower recoveries and tonnes processed.  Metal sales were 4% higher in the second quarter of 2012 compared with the second quarter of 2011 due to an increase in metal prices realized, offset to some extent by a decline in gold equivalent ounces sold.
 
Gold equivalent ounces produced and sold in the first six months of 2012 were 2% and 10% higher, respectively, compared with the first six months of 2011, primarily due to the higher tonnes processed in the first six months of 2012. Metal sales in the first six months of 2012 were 25% higher compared with the first six months of 2011 due to an increase in gold equivalent ounces sold and higher metal prices realized.
 
Net earnings from Crixás during the second quarter of 2012 and the first six months of 2012 were $37.8 million and $43.9 million, respectively, inclusive of the after-tax disposal gain of $33.8 million recognized in the second quarter.

 
 
 

Exploration and business development

     Three months ended June 30,
Six months ended June 30,
  
(in millions)
  
2012
    
2011
    
Change
    
% Change
    
2012
    
2011
    
Change
    
% Change
  
Exploration and business development
   $ 71.2     $ 26.3     $ 44.9       171 %   $ 129.9     $ 49.9     $ 80.0       160 %

In the second quarter of 2012, exploration and business development expenses were $71.2 million, compared with $26.3 million for the second quarter of 2011.  Of the total exploration and business development expense, expenditures on exploration totaled $54.2 million for the quarter.  Capitalized exploration expenses, including capitalized evaluation expenditures, totaled $12.0 million for the second quarter of 2012 compared with $28.8 million in the second quarter of 2011.
 
In the first six months of 2012, exploration and business development expenses were $129.9 million, compared with $49.9 million for the first six months of 2011.  Of the total exploration and business development expense, expenditures on exploration totaled $97.4 million for the first six months of 2012.  Capitalized exploration expenses, including capitalized evaluation expenditures, totaled $17.1 million for the first six months of 2012 compared with $55.0 million in the first six months of 2011.  Kinross was active on more than 25 mine sites, near-mine and greenfield initiatives during the first six months of 2012, with a total of 372,752 metres drilled.
 
General and administrative

     Three months ended June 30,
Six months ended June 30,
  
(in millions)
  
2012
    
2011
    
Change
    
% Change
    
2012
    
2011
    
Change
    
% Change
  
General and administrative
   $ 44.0     $ 40.1     $ 3.9       10 %   $ 83.7     $ 83.4     $ 0.3       0 %

General and administrative costs include expenses related to the overall management of the business which are not part of direct mine operating costs. These are costs that are incurred at corporate offices located in Canada, the United States, Brazil, the Russian Federation, Chile, and the Canary Islands.
 
For the second quarter of 2012, general and administrative costs were $44.0 million, an increase of 10% relative to the second quarter of 2011, primarily due to higher employee related costs. For the first six months of 2012, general and administrative costs were comparable with the same period in 2011.

Other income (expense) – net

      Three months ended June 30,  Six months ended June 30,  
(in millions)
  
2012
    
2011
    
Change
    
% Change (a)
2012
    
2011
    
Change
    
% Change (a)
  
Gains (losses) on acquisition/disposition of assets and investments - net
   $ (0.5 )   $ 0.6     $ (1.1 )     (183 %)   $ (0.5 )   $ 31.4     $ (31.9 )     (102 %)
Impairment of investments
     (20.2 )     -       (20.2 )     (100 %)     (20.2 )     -       (20.2 )     (100 %)
Foreign exchange gains (losses)
     (13.5 )     7.4       (20.9 )     (282 %)     (6.2 )     21.9       (28.1 )     (128 %)
Net non-hedge derivative gains
     3.4       7.1       (3.7 )     (52 %)     13.5       48.1       (34.6 )     (72 %)
Other income (expense)
     2.3       1.9       0.4       21 %     (2.8 )     3.7       (6.5 )     (176 %)
    $ (28.5 )   $ 17.0     $ (45.5 )     (268 %)   $ (16.2 )   $ 105.1     $ (121.3 )     (115 %)
(a) "nm" means not meaningful.

Other income (expense) decreased by $45.5 million from income of $17.0 million in the second quarter of 2011 to an expense of $28.5 million in the second quarter of 2012.  For the first six months of 2012, other income (expense) decreased to an expense of $16.2 million compared with income of $105.1 million for the first six months of 2011.  The discussion below details the significant changes in other income (expense) for the second quarter of 2012 and the first six months of 2012 compared with the same periods in 2011.

 
 
 
 
Gains (losses) on acquisition/disposition of assets and investments – net

During the second quarter of 2012 there was a net loss of $0.5 million on acquisition/disposition of assets and investments compared with a net gain of $0.6 million in the second quarter of 2011. There was a net loss of $0.5 million on the acquisition/disposition of assets and investments in the first six months of 2012 compared with a net gain of $31.4 million in the first six months of 2011.  Included in the first six months of 2011 was a gain of $30.9 million on the sale of the Company’s interest in Harry Winston.

Impairment of investments 

During the second quarter of 2012 and the first six months of 2012 the Company recognized an impairment charge of $20.2 million on certain of its available-for-sale investments due to a significant and/or prolonged decline in their fair values. No such charges were recognized during the corresponding periods in 2011.

Foreign exchange gains (losses)

In the second quarter of 2012, foreign exchange losses were $13.5 million compared with gains of $7.4 million during the same period in 2011. Foreign exchange losses were $6.2 million for the first six months of 2012 compared with gains of $21.9 million for the first six months of 2011.  The change from foreign exchange gains to losses for both the second quarter of 2012 and the first six months of 2012 compared with the same periods in 2011 was due to the US dollar, on average, being stronger relative to the Russian rouble, Canadian dollar, Brazilian real, Chilean peso, Ghanaian Cedi and Mauritanian ouguiya compared with the same periods in 2011 applied to a net monetary balance. In addition, as at June 30, 2012, the US dollar was stronger compared with the spot exchange rates at December 31, 2011 relative to the Russian rouble, Brazilian real, Ghanaian Cedi and Mauritanian ouguiya, and weaker relative to the Canadian dollar and Chilean peso.
 
Net non-hedge derivative gains

Net non-hedge derivative gains recognized during the second quarter of 2012 and the first six months of 2012 declined to $3.4 million and $13.5 million, respectively, compared with gains of $7.1 million and $48.1 million, recognized during the second quarter of 2011 and the first six months of 2011, respectively. The decrease was largely due to the impact of the fair value adjustments related to the embedded derivatives on the Company’s senior convertible notes and Canadian dollar denominated common share purchase warrants.

Finance expense

     Three months ended June 30,   Six months ended June 30,
(in millions)
  
2012
    
2011
    
Change
    
% Change
    
2012
    
2011
    
Change
    
% Change
  
Finance expense
   $ (9.0 )   $ (16.0 )   $ 7.0       44 %   $ (18.8 )   $ (32.3 )   $ 13.5       42 %

Finance expense includes accretion on reclamation and remediation obligations and interest expense.

Finance expense declined by $7.0 million in the second quarter of 2012 compared with the second quarter of 2011, primarily due to an increase in capitalized interest. Interest capitalized during the second quarter of 2012 was $23.5 million compared with $2.9 million for the corresponding period in 2011, while interest capitalized during the first six months of 2012 was $45.8 million compared with $3.2 million during the same period in 2011. The increase in interest capitalized during the above mentioned periods was largely due to new interest charges from the issuance of the unsecured $1.0 billion senior notes in August 2011 and an increase in qualifying capital expenditures relating to various development projects at Tasiast, Dvoinoye, Paracatu, Maricunga, Fort Knox and Round Mountain.

 
 
 

Income and mining taxes

Kinross is subject to tax in various jurisdictions including Canada, the United States, Brazil, Chile, Ecuador, the Russian Federation, Mauritania, and Ghana.
 
The Company recorded a tax provision of $104.7 million on earnings before taxes from continuing operations of $220.7 million during the second quarter of 2012, compared with a tax provision of $97.5 million on earnings before taxes from continuing operations of $355.6 million in the second quarter of 2011. Kinross' combined federal and provincial statutory tax rate was 26.5% for the second quarter of 2012. The Company’s effective tax rate was 47.4% for the second quarter of 2012 compared with 27.4% for the corresponding period in 2011.
 
The change in the Company’s effective tax rate during the second quarter of 2012 to 47.4%, as described above, compared with the effective tax rate of 27.4% during the second quarter of 2011 was largely due to:

 
i)
a higher 2012 effective tax rate from a net foreign exchange loss on translation of tax basis and deferred income taxes within income tax expense;
 
ii)
a lower 2011 effective tax rate from a foreign exchange gain on translation of tax basis and deferred income taxes within income tax expense; and
 
iii)
income mix.

In the first six months of 2012, the Company recorded a tax provision of $319.1 million on earnings before taxes from continuing operations of $525.9 million, compared with a tax provision of $209.1 million on earnings before taxes from continuing operations of $754.4 million in the first six months of 2011. Kinross’ combined federal and provincial statutory tax rate was 26.5% for the first six months of 2012. Excluding the impact of a remeasurement of the deferred tax liability, amounting to $110.3 million, as a result of the increase in the Ghanaian corporate income tax rate from 25% to 35%, the Company’s effective tax rate was 39.7% for the first six months of 2012 compared with 27.7% for the same period in 2011.
 
The change in the Company’s effective tax rate during the first six months of 2012 to 39.7%, as described above, compared with the effective tax rate of 27.7% during the first six months of 2011 was largely due to:

 
i)
a higher 2012 effective tax rate from a net foreign exchange loss on translation of tax basis and deferred income taxes within income tax expense;
 
ii)
a lower 2011 effective tax rate as a result of the tax free sale of our investment in Harry Winston; and
 
iii)
income mix.

There are a number of factors that can significantly impact the Company's effective tax rate including the geographic distribution of income, varying rates in different jurisdictions, the non-recognition of tax assets, mining allowance, foreign currency exchange rate movements, and changes in tax laws and the impact of specific transactions and assessments.
 
Due to the number of factors that can potentially impact the effective tax rate and the sensitivity of the tax provision to these factors, as discussed above, it is expected that the Company's effective tax rate will fluctuate in future periods.

 
 
 

6.
LIQUIDITY AND CAPITAL RESOURCES

The following table summarizes Kinross’ cash flow activity:

     Three months ended June 30,  Six months ended June 30,  
(in millions)
  
2012
    
2011
    
Change
    
% Change (b)
  
2012
    
2011
    
Change
    
% Change (b)
  
                                                 
Cash flow:
                                                
   Of continuing operations provided from operating activities (a)
   $ 77.4     $ 346.6     $ (269.2 )     (78 %)   $ 453.9     $ 687.2     $ (233.3 )     (34 %)
   Of continuing operations used in investing activities (a)
     (428.8 )     (480.0 )     51.2       11 %     (968.9 )     (642.6 )     (326.3 )     (51 %)
   Of continuing operations used in financing activities (a)
     (1.9 )     (350.8 )     348.9       99 %     (119.4 )     (430.8 )     311.4       72 %
   Of discontinued operations
     213.7       (0.1 )     213.8    
nm
       213.1       (8.9 )     222.0    
nm
  
Effect of exchange rate changes on cash of and cash equivalents of continuing operations (a)
     (7.0 )     3.8       (10.8 )  
nm
       (4.4 )     8.8       (13.2 )     (150 %)
Decrease in cash and cash equivalents
     (146.6 )     (480.5 )     333.9       69 %     (425.7 )     (386.3 )     (39.4 )     (10 %)
Cash and cash equivalents, beginning of period
     1,486.9       1,560.8       (73.9 )     (5 %)     1,766.0       1,466.6       299.4       20 %
Cash and cash equivalents, end of period
   $ 1,340.3     $ 1,080.3     $ 260.0       24 %   $ 1,340.3     $ 1,080.3     $ 260.0       24 %
(a)The comparative figures have been recast to exclude Crixás results due to its disposal.
    
(b) "nm" means not meaningful.
    
 
Cash and cash equivalent balances decreased by $146.6 million during the second quarter of 2012 compared with a decline of $480.5 million during the second quarter of 2011. For the first six months of 2012, cash and cash equivalent balances decreased by $425.7 million compared with a decline of $386.3 million during the same period in 2011. Detailed discussions regarding cash flow movements are noted below.

Operating Activities from Continuing Operations

Second quarter 2012 vs. Second quarter 2011

Net cash flow of continuing operations provided from operating activities decreased by $269.2 million in the second quarter of 2012 compared with the second quarter of 2011, primarily due to a decline in gross margin and an increase in inventories and receivables.

First six months of 2012 vs. First six months of 2011

During the first six months of 2012 net cash flow of continuing operations provided from operating activities was $233.3 million lower than in the first six months of 2011.  The decrease in cash flows was largely the result of a decrease in gross margin, increase in inventories and receivables, offset to some extent by an increase in payables.

Investing Activities from Continuing Operations

Second quarter 2012 vs. Second quarter 2011

Net cash used in investing activities of continuing operations during the second quarter of 2012 was $428.8 million, compared with cash used in investing activities of continuing operations of $480.0 million during the same period in 2011. During the second quarter of 2012, the primary use of cash was for investment in property, plant and equipment of $431.2 million. The primary use of cash during the second quarter of 2011 was investment in property, plant and equipment of $408.8 million.

First six months of 2012 vs. First six months of 2011

Cash used in investing activities of continuing operations during the first six months of 2012 was $968.9 million compared with $642.6 million for the first six months of 2011.  During the first six months of 2012, the primary use of cash was capital expenditures of $961.4 million. The primary use of cash was investment in property, plant and equipment of $661.7 million during the first six months of 2011, which was offset to some extent by the net proceeds of $100.6 million received on the sale of Kinross’ interest in Harry Winston.
 
 
 
 
The following table presents a breakdown of capital expenditures from continuing operations on a cash basis:

   
Three months ended June 30,
    
Six months ended June 30,
  
(in millions)
  
2012
    
2011
    
Change
    
% Change
    
2012
    
2011
    
Change
    
% Change
  
Operating segments
                                                
Fort Knox
   $ 38.4     $ 26.2     $ 12.2       47 %   $ 63.2     $ 48.3     $ 14.9       31 %
Round Mountain
     19.3       7.9       11.4       144 %     32.9       16.4       16.5       101 %
Kettle River - Buckhorn
     3.2       3.4       (0.2 )     (6 %)     3.7       6.5       (2.8 )     (43 %)
Kupol(a)
     43.5       92.9       (49.4 )     (53 %)     83.4       102.4       (19.0 )     (19 %)
Paracatu
     67.2       65.2       2.0       3 %     141.8       101.9       39.9       39 %
Maricunga
     50.7       44.3       6.4       14 %     86.3       85.4       0.9       1 %
La Coipa
     22.2       15.3       6.9       45 %     37.5       24.0       13.5       56 %
Tasiast
     124.3       92.1       32.2       35 %     384.3       176.3       208.0       118 %
Chirano
     20.6       29.0       (8.4 )     (29 %)     43.0       46.2       (3.2 )     (7 %)
Non-operating segments
                                                                
Fruta del Norte
     16.2       19.0       (2.8 )     (15 %)     39.9       32.3       7.6       24 %
Corporate and other(b)
     25.6       13.5       12.1       90 %     45.3       22.0       23.3       106 %
Total
   $ 431.2     $ 408.8     $ 22.4       5 %   $ 961.4     $ 661.7     $ 299.7       45 %
                                                                 
(a) As of December 31, 2011, Dvoinoye was reclassified into the Kupol segment. The comparative figures have been reclassified to conform to the 2012 segment presentation.
  
(b) "Corporate and Other" includes corporate and other non-operating assets (including Lobo-Marte and White Gold).
  

Capital expenditures of continuing operations for the three and six months ended June 30, 2012 increased by $22.4 million and $299.7 million, respectively, compared with the corresponding periods in 2011. The increases in capital expenditures resulted primarily from the Tasiast expansion project, the fourth ball mill and tailings dam projects at Paracatu, and continued development of Phase 7 at Fort Knox and Phase H expansion at Round Mountain. The increase in capital expenditures for the Corporate and other segment was primarily due to development activities at Lobo-Marte.

Financing Activities from Continuing Operations

Second quarter 2012 vs. Second quarter 2011

Net cash used in financing activities of continuing operations during the second quarter of 2012 was $1.9 million, compared with net cash used of $350.8 million in the same period of 2011. Proceeds from the issuance of debt increased by $69.3 million during the second quarter of 2012 compared with the same period in 2011, offset by an increase in debt repayments of $59.6 million. In addition, during the second quarter of 2011, the Company acquired the outstanding share capital of Chukotka Mining and Geological Company (“CMGC”) for total cash consideration of $335.4 million, increasing its interest in the entity to 100%.

First six months of 2012 vs. First six months of 2011

Net cash used in financing activities of continuing operations was $119.4 million during the first six months of 2012, compared with cash used of $430.8 million during the first six months of 2011. Dividends paid during the first six months of 2012 increased by $34.3 million compared with the same period in 2011. During the first six months of 2011, the Company acquired the outstanding share capital of CMGC for total cash consideration of $335.4 million, increasing its interest in CMGC to 100%. In addition, proceeds received on issuance of common shares during the first six months of 2012 decreased by $11.4 million compared with the same period in 2011. Net repayment of debt increased by $3.2 million during the first six months of 2012 compared with the first six months of 2011.


 
 
 

Balance Sheet

   
As at
  
(in millions)
  
June 30, 2012
    
December 31, 2011
  
             
Cash and cash equivalents and short-term investments
   $ 1,340.3     $ 1,767.3  
Current assets
   $ 2,796.2     $ 3,117.8  
Total assets
   $ 16,874.4     $ 16,508.8  
Current liabilities
   $ 1,300.7     $ 795.7  
Total long-term financial liabilities(a)
   $ 1,898.8     $ 2,363.3  
Total debt, including current portion
   $ 1,623.6     $ 1,633.1  
Total liabilities
   $ 4,160.3     $ 4,038.1  
Common shareholders' equity
   $ 12,642.4     $ 12,390.4  
Non-controlling interest
   $ 71.7     $ 80.3  
Statistics
                
Working capital
   $ 1,495.5     $ 2,322.1  
Working capital ratio (b)
  
2.15:1
    
3.92:1
  
                 
(a) Includes long-term debt, provisions, unrealized fair value of derivative liabilities, and other long-term liabilities.
  
(b) Current assets divided by current liabilities.
                
 
At June 30, 2012, Kinross had cash and cash equivalents and short-term investments of $1,340.3 million, a decrease of $427.0 million over the December 31, 2011 balance, primarily due to cash flows used in the purchase of property, plant, and equipment.  Current assets decreased to $2,796.2 million largely due to the decrease in cash.  Total assets increased by $365.6 million to $16,874.4 million, largely due to additions to property, plant and equipment.  Current liabilities increased to $1,300.7 million mainly due to an increase in the current portion of long-term debt reflecting the reclassification of the senior convertible notes.  Total debt decreased by $9.5 million largely due to the repayment of the Paracatu term loan of $22.7 million.
 
A dividend of $0.08 per common share was paid to shareholders of record on March 23, 2012.
 
On August 8, 2012, the Board of Directors declared a dividend of $0.08 per common share to shareholders of record on September 21, 2012.
 
As of August 7, 2012, there were 1,139.3 million common shares of the Company issued and outstanding. In addition, at the same date, the Company had 14.2 million share purchase options outstanding under its share option plan and 45.5 million common share purchase warrants outstanding (convertible to 45.5 million Kinross shares).
 
Financings and Credit Facilities

Convertible debentures

In January 2008, Kinross received net proceeds of $449.9 million from the offering of $460.0 million convertible senior notes due March 15, 2028 (the "convertible notes"), after payment of commissions and expenses of the offering. The notes pay interest semi-annually at a rate of 1.75% per annum. The notes will be convertible on or after December 27, 2027, at the holder's option, equivalent to a conversion price of $27.64 per share of common stock subject to adjustment. The convertible senior notes may be converted, at the same conversion rate and at the option of the holder, prior to December 15, 2027 if certain events occur, including Kinross common shares trading at a level greater than 130% of the effective conversion price of the convertible senior notes for any 20 trading days during the 30 consecutive trading day period ending on the last trading day of each calendar quarter ending on or after June 30, 2008. The convertible senior notes are redeemable by the Company, in whole or part, for cash at any time on or after March 20, 2013, at a redemption price equal to par plus accrued and unpaid interest, if any, to the redemption date. Holders may require Kinross to repurchase the convertible senior notes at a purchase price equal to par plus accrued and unpaid interest, if any, to the repurchase date, on March 15, 2013, March 15, 2018 and March 15, 2023, or upon certain fundamental changes. Subject to certain conditions, Kinross may deliver, in lieu of cash, Kinross common shares, or a combination of cash and Kinross common shares, in satisfaction of the purchase price.

Senior notes

On August 22, 2011, the Company completed a $1.0 billion offering of debt securities, consisting of $250.0 million principal amount of 3.625% senior notes due 2016, $500.0 million principal amount of 5.125% senior notes due 2021 and $250.0 million principal amount of 6.875% senior notes due 2041 (collectively, the “notes”).  The notes pay interest semi-annually. Kinross received net proceeds of $980.9 million from the offering, after discount, payment of the commissions of the initial purchasers and expenses of the offering.  Except as noted below, the notes are redeemable by the Company, in whole or part, for cash at any time prior to maturity, at a redemption price equal to the greater of 100% of the principal amount or the sum of the present value of the remaining scheduled principal and interest payments on the notes discounted at the applicable treasury rate, as defined in the indenture, plus a premium of between 40 and 50 basis points, plus accrued interest, if any.  Within three months and six months of maturity of the notes due in 2021 and 2041, respectively, the Company can only redeem the notes in whole at 100% of the principal amount plus accrued interest, if any.  In addition, the Company is required to make an offer to repurchase the notes prior to maturity upon certain fundamental changes at a redemption price equal to 101% of the principal amount of the notes plus accrued and unpaid interest to the redemption date, if any.
 
 

Kupol project financing

On December 21, 2011, the Company completed a $200.0 million non-recourse loan from a group of international financial institutions. The non-recourse loan carries a term of five years, maturing on September 30, 2016 and bears annual interest of LIBOR plus 2.5%. Semi-annual principal repayments of $30.0 million will commence in March 2013 and continue through September 30, 2015. Principal repayments due on March 31, 2016 and September 30, 2016 are reduced to $13.0 million and $7.0 million, respectively. The Company may prepay the loan in whole or in part, without penalty, but subject to customary break costs, if any. The agreement contains various requirements that include limits on distributions if certain minimum debt service coverage levels are not achieved. Land, plant and equipment with a carrying amount of $217.2 million (December 31, 2011 - $231.3 million) are pledged as security as part of the Kupol project financing.
 
As at June 30, 2012, cash of $34.0 million (December 31, 2011 - $34.0 million) was restricted for payments related to the loan

Credit facilities

In November 2009, the Company entered into an amended revolving credit facility which provided credit of $450.0 million on an unsecured basis and was to expire in November 2012. The term loan for the Paracatu property, which was part of the credit facility agreement the Company entered into in 2006, formed part of the amended revolving credit facility, and that credit is now available to the Company as the term loan has been repaid.  On June 17, 2010, the Company entered into a further amendment to increase availability under the facility to $600.0 million.  On September 17, 2010, the revolving credit facility was further amended to add Mauritania, Ghana, and Côte d’Ivoire as permitted jurisdictions as a result of the Red Back acquisition.  All other terms and conditions under the existing revolving credit facility remained unchanged.
 
On March 31, 2011, the Company entered into a further amendment of the facility which included increasing the availability under the facility to $1,200.0 million and extending the term of the facility from November 2012 to March 2015.
 
As at June 30, 2012, the Company had drawn $42.8 million on the amended revolving credit facility. The entire amount drawn was for letters of credit (December 31, 2011 – $55.5 million, included drawings for the Paracatu term loan and $32.8 million for letters of credit). The Paracatu term loan was repaid during the first quarter of 2012.
 
The amended revolving credit facility contains various covenants including limits on indebtedness, asset sales and liens.  Significant financial covenants include a minimum tangible net worth of $5,250.0 million and increasing by 50% of positive net income each quarter starting with the quarter ending March 31, 2011 (previously $3,345.3 million starting September 30, 2009 and increasing by 50% of positive net income each quarter), an interest coverage ratio of at least 4.25:1, and net debt to EBITDA, as defined in the agreement, of no more than 3.5:1.  The Company is in compliance with these covenants at June 30, 2012.
 
Loan interest is variable, set at LIBOR plus an interest rate margin which is dependent on the ratio of the Company’s net debt to EBITDA as defined in the agreement.
 
The Company’s current ratio of net debt to EBITDA at June 30, 2012, as defined in the agreement, is less than 1.00:1.  At this ratio, interest charges are as follows:
 
Type of credit
   Credit facility  
Dollar based LIBOR loan
   LIBOR plus 1.75%  
Letters of credit
  1.75 %
Standby fee applicable to unused availability
   0.44 %

Prior to the above noted amendments to the revolving credit facility, the Company had in place a revolving credit facility of $300.0 million and a $104.6 million term loan, under an agreement signed in 2006. The 2006 revolving credit facility supported the Company's liquidity and letters of credit requirements and, as amended in 2007, was to expire in August 2010.  The purpose of the term loan was to support the expansion program at the Paracatu mine in Brazil.  The term loan was repaid in full in February 2012.
 
Loan interest under the 2006 revolving credit facility agreement was variable, set at LIBOR plus an interest rate margin dependent on the ratio of the Company’s net debt to operating cash flow, as defined under the agreement.
 
The 2006 credit agreement contained various covenants that included limits on indebtedness, distributions, asset sales and liens.  Significant financial covenants included a minimum tangible net worth of $700.0 million, an interest coverage ratio of at least 4.5:1, net debt to operating cash flow of no more than 3.0:1 and minimum proven and probable reserves of 6 million gold equivalent ounces after repayment of the term loan.  The financial covenants were based on the amounts recorded by the Company, less amounts recorded in EastWest Gold Corporation, a subsidiary of Kinross and formerly known as Bema.

Other
 
From time to time, the Company’s operations in Brazil may borrow US dollars from Brazilian banks on a short-term unsecured basis to meet working capital requirements. As at June 30, 2012 and December 31, 2011, $nil was outstanding under such borrowings.
 
In November 2009, the Company entered into a separate Letter of Credit guarantee facility with Export Development Canada (“EDC”) for $125.0 million. Letters of credit guaranteed by this facility are solely for reclamation liabilities at Fort Knox, Round Mountain, and Kettle River–Buckhorn.  On July 30, 2010, the Company entered into an amendment to increase the amount of the Letter of Credit guarantee facility from $125.0 million to $136.0 million. On June 15, 2012 the Company entered into a further amendment of the Letter of Credit guarantee facility to increase the amount from $136.0 million to $200.0 million and extend the maturity date to March 31, 2015.  All other terms and conditions under this facility remained the same.  As at June 30, 2012, $164.4 million (December 31, 2011 - $135.1 million) was outstanding under this facility.
 
In addition, at June 30, 2012, the Company had approximately $40.6 million (December 31, 2011 - $41.0 million) in letters of credit outstanding, in respect of its operations in Brazil, Mauritania and Ghana. These letters of credit have been issued pursuant to arrangements with certain international banks.
 
The following table outlines the credit facility utilization and availability:

   
As at
(in millions)
  June 30, 2012
 
December 31, 2011
         
Revolving credit facility
 $         (42.8)
  
 $           (55.5)
Utilization of EDC facility
          (164.4)
  
            (135.1)
Borrowings
 $       (207.2)
  
 $         (190.6)
         
Available under revolving credit facility
 $     1,157.2
  
 $       1,144.5
Available under EDC credit facility
             35.6
  
                 0.9
Available credit
 $     1,192.8
  
 $       1,145.4

Total debt of $1,623.6 million at June 30, 2012 consists of $436.5 million for the debt component of the convertible debentures, $982.4 million for the senior notes, $195.2 million for the Kupol project financing, and $9.5 million in finance leases.  The current portion of this debt is $475.9 million at June 30, 2012.

 
 
 

Liquidity Outlook

In 2012, the Company now expects to repay $32.6 million of debt in cash, of which $27.8 million was repaid during the first six months of 2012.  As a result of the disposition of Crixás, the Company’s debt repayment obligation for 2012 decreased by $0.4 million.
 
We believe that the Company’s existing cash and cash equivalent balances of $1,340.3 million, available credit of $1,192.8 million, and expected operating cash flows based on current assumptions (noted in Section 3 of this MD&A) will be sufficient to fund operations, our forecasted exploration and capital expenditures (noted in Section 3 of this MD&A), debt repayments noted above and reclamation and remediation obligations in 2012.  Prior to any capital investments, consideration is given to the cost and availability of various sources of capital resources.
 
With respect to longer term capital expenditure funding requirements, the Company continues to have discussions with lending institutions that have been active in the jurisdictions in which the Company’s development projects are located. Some of the jurisdictions in which the Company operates have seen the participation of lenders including export credit agencies, development banks and multi-lateral agencies.  The Company believes the capital from these institutions combined with more traditional bank loans and capital available through debt capital market transactions will fund a portion of the Company’s longer term capital expenditure requirements. Another possible source of capital would be proceeds from the sale of non-core assets. These capital sources together with operating cash flow and the Company’s active management of its operations and development activities will enable the Company to maintain an appropriate overall liquidity position.

Contractual Obligations and Commitments

The Company manages its exposure to fluctuations in input commodity prices, currency exchange rates and interest rates, by entering into derivative financial instruments from time to time, in accordance with the Company's risk management policy. The following table provides a summary of derivative contracts outstanding at June 30, 2012:
 
   
2012
    
2013
    
2014
    
2015
    
Total
  
Foreign currency
                              
Brazilian real forward buy contracts
                              
(in millions of U.S. dollars)
     221.0       383.3       210.5       25.0       839.8  
Average price
     1.88       1.99       2.15       2.25       2.01  
Chilean peso forward buy contracts
                                        
(in millions of U.S. dollars)
     101.6       137.4       66.0       -       305.0  
Average price
     497.98       516.67       553.44       -       518.40  
Russian rouble forward buy contracts
                                        
(in millions of U.S. dollars)
     62.1       87.0       48.0       10.0       207.1  
Average price
     32.65       32.63       34.69       35.92       33.27  
Canadian dollar forward buy contracts
                                        
(in millions of U.S. dollars)
     68.9       129.0       48.0       -       245.9  
Average price
     1.01       1.02       1.04       -       1.02  
                                         
Energy
                                        
Oil forward buy contracts (barrels)
     218,000       285,000       110,000       -       613,000  
Average price
     95.41       92.59       89.27       -       93.00  
Diesel forward buy contracts (gallons)
     2,520,000       4,620,000       -       -       7,140,000  
Average price
     2.96       2.97       -       -       2.96  
Gasoil forward buy contracts (tonnes)
     6,711       40,260       16,104       -       63,075  
Average price
     935.51       906.30       864.00       -       898.60  

During 2008, the Company entered into an interest rate swap in order to fix the interest rates on 50% of the term loan, maturing in February 2012, for Paracatu. Under the contract, Kinross Brasil Mineração S.A. ("KBM"), a wholly-owned subsidiary of the Company, was to pay a rate of 3.83% and receive LIBOR plus 1%. The Paracatu term loan was repaid in February 2012, and accordingly, the interest rate swap was settled.
 
The following new forward buy derivative contracts were engaged during the six months ended June 30, 2012:
 
 
·
$65 million at an average rate of 510 Chilean pesos maturing in 2013;
 
·
$171 million at an average rate of 1.026 Canadian dollars maturing in 2012, 2013, and 2014;
 
·
$79 million at an average rate of 34.14 Russian roubles maturing in 2013, 2014, and 2015;
 
·
$408 million at an average rate of 2.07 Brazilian reais maturing in 2012, 2013, 2014, and 2015;
 
·
56,364 metric tonnes of gasoil at an average rate of $894.21 per metric tonne maturing in 2013 and 2014;
 
·
328,000 barrels of crude oil at an average rate of $95.48 per barrel maturing in 2012, 2013 and 2014; and
 
·
2.5 million gallons of ultra-low-sulfur diesel at an average rate of $3.00 per gallon maturing in 2012 and 2013.

 
 
 

Fair value of derivative instruments

The fair value of derivative instruments are noted in the table below:

   
As at
  
(in millions)
  
June 30, 2012
    
December 31, 2011
  
Asset (liability)
            
Interest rate swap
   $ -     $ (0.1 )
Foreign currency forward contracts
     (58.4 )     (75.1 )
Energy forward contracts
     (7.2 )     1.6  
Total return swap
     0.1       (0.7 )
Canadian $ denominated common share purchase warrant liability
     (7.5 )     (18.6 )
Senior convertible notes - conversion option
     (0.2 )     (2.6 )
    $ (73.2 )   $ (95.5 )

Contingent Liability

The Company is obligated to pay $20.0 million to Barrick Gold Corporation (“Barrick”) when a production decision is made relating to the Cerro Casale project.

Other legal matters

The Company is from time to time involved in legal proceedings, arising in the ordinary course of its business. Typically, the amount of ultimate liability with respect to these actions will not, in the opinion of management, materially affect Kinross' financial position, results of operations or cash flows.
 
A putative securities class action complaint was filed on February 16, 2012 (the “U.S. Complaint”), entitled Bo Young Cha v. Kinross Gold Corporation et al., in the United States District Court for the Southern District of New York (the “Court”).  The U.S. Complaint named as defendants the Company, Tye Burt, former President and CEO, Paul Barry, Executive Vice President and Chief Financial Officer, Glen Masterman, Senior Vice President, Exploration and Kenneth Thomas, former Senior Vice President, Projects. On May 31, 2012, the Court selected the City of Austin Police Retirement System (“City of Austin”) to be lead plaintiff. Pursuant to an order of the Court, City of Austin filed an amended Complaint on July 23, 2012 (the “Amended U.S. Complaint”).  The Amended U.S. Complaint alleges among other things, that, between August 2, 2010 and January 17, 2012, the Defendants inflated Kinross’ share price by knowingly or recklessly making material misrepresentations concerning (i) the extent and quality of the due diligence Kinross performed prior to its acquisition of Red Back and (ii) Kinross’ schedule for developing the Tasiast mine.  Defendants are scheduled to file a motion to dismiss the Amended U.S. Complaint on or before September 7, 2012.  Defendants intend to vigorously defend against the Amended U.S. Complaint and believe it is without merit.
 
A notice of action in a proposed class proceeding under Ontario’s Class Proceedings Act, 1992, was filed in the Ontario Superior Court of Justice (the “Ontario Court”) on March 12, 2012, entitled Trustees of the Musicians’ Pension Fund of Canada v. Kinross Gold Corporation et al. (the “ First Ontario Action”). A statement of claim in the First Ontario Action was subsequently served on April 11, 2012. The Ontario Action named as defendants the Company, Tye Burt, former President and CEO, Paul Barry, Executive Vice President and Chief Financial Officer, Glen Masterman, Senior Vice President, Exploration, and Kenneth Thomas, former Senior Vice President, Projects. The First Ontario Action alleges, among other things, that Kinross made a number of misrepresentations relating to the quantity and quality of gold ore at the Tasiast mine and the costs of operating the mine, and that Kinross and the individual defendants knew that such misrepresentations were false or misleading when made. The plaintiff is seeking certification of the action as a class proceeding and leave to proceed under the statutory civil liability provisions of Ontario’s Securities Act. The plaintiff is also seeking various relief, including damages in the amount of CDN$4 billion and costs of the action. Kinross intends to vigorously defend against the First Ontario Action and believes it is without merit.
 
A notice of action in a second proposed class proceeding was filed in the Ontario Court on March 16, 2012 and a corresponding statement of claim was served with the notice of action on April 17, 2012 entitled Earl Downey and John Doe I v. Kinross Gold Corporation et al. (the “Second Ontario Action”). The Second Ontario Action names the same defendants as the First Ontario Action and, in addition, names Tasiast Mauritanie Limited S.A. (“TMLSA”), an indirect subsidiary of Kinross that is incorporated and headquartered in Mauritania. TMLSA disputes that it was validly served with the claim in Ontario and reserves its right to contest the jurisdiction of the Ontario Court. The allegations in the Second Ontario Action are similar to those advanced in the First Ontario Action. Various forms of relief are sought, including damages in the amount of CDN$3.5 billion and costs of the action. Subsequent to the service of the statement of claim in the Second Ontario action, it came to Kinross’ attention that the same law firm that acts for the plaintiff in the Second Ontario Action had filed statements of claim making virtually identical allegations against the same defendants on behalf of the same proposed class with the Supreme Court of British Columbia and the Court of Queen’s Bench of Alberta (the “Parallel British Columbia and Alberta Actions”).  The firms representing the plaintiffs in the First Ontario Action and the Second Ontario Action reached an agreement on carriage whereby the First Ontario Action will proceed and the Second Ontario Action and the Parallel British Columbia and Alberta Actions will be discontinued. This agreement was disclosed to the Ontario Court on July 16, 2012.
 
 
 
 
 
7.
SUMMARY OF QUARTERLY INFORMATION
 
   
2012
    
2011 (a)
    
2010 (a)
  
(in millions, except per share amounts)
     Q2       Q1 (a)     Q4       Q3       Q2       Q1       Q4       Q3  
                                                                 
Metal sales
   $ 1,006.7     $ 1,008.1     $ 919.8     $ 1,040.9     $ 963.6     $ 918.1     $ 894.2     $ 710.0  
Net earnings (loss) from  continuing operations attributed to common shareholders
   $ 115.8     $ 99.6     $ (2,791.0 )   $ 207.2     $ 244.3     $ 246.2     $ (80.8 )   $ 534.6  
Net earnings from  discontinued operation after-tax
   $ 37.8     $ 6.1     $ 7.3     $ 5.4     $ 3.1     $ 3.9     $ 7.9     $ 6.3  
Basic earnings (loss) per share from continuing operations attributable to common shareholders
   $ 0.10     $ 0.09     $ (2.45 )   $ 0.18     $ 0.22     $ 0.22     $ (0.07 )   $ 0.70  
Diluted earnings (loss) per share from continuing operations attributable to common shareholders
   $ 0.10     $ 0.09     $ (2.45 )   $ 0.18     $ 0.21     $ 0.22     $ (0.07 )   $ 0.68  
Net cash flow of continuing operations provided from operating activities
   $ 77.4     $ 376.5     $ 402.6     $ 289.0     $ 346.6     $ 340.6     $ 277.6     $ 233.3  
(a) The comparative figures have been recast to exclude Crixás results due to its disposal.
                          

The Company’s results over the past several quarters have been driven primarily by fluctuations in gold price and changes in the gold equivalent ounces produced. Fluctuations in the silver price have also impacted results.  During the second quarter of 2012, revenues from continuing operations increased to $1,006.7 million compared with revenue of $963.6 million in the second quarter of 2011. The increase in revenues was primarily due to an increase in the average realized gold price per ounce from continuing operations, which during the second quarter of 2012 was $1,568 compared with $1,448 in the second quarter of 2011.
 
Additionally, increases in input costs and fluctuations in the foreign exchange rates have impacted results. Depreciation, depletion and amortization varied between each of the above quarters largely due to changes in the gold equivalent ounces sold. In addition, changes in reserves during each of these years impacted depreciation, depletion and amortization for quarters relating to the subsequent year.
 
In the second quarter of 2012, the Company sold its 50% interest in the Crixás gold mine to a subsidiary of AngloGold Ashanti Ltd. for gross proceeds of $220.0 million, resulting in an after-tax gain on disposal of $33.8 million. The net earnings, including the gain on disposal, and cash flows of the discontinued operations have been presented separately in the interim condensed consolidated statements of operations and cash flows, and comparative periods have been recasted accordingly.
 
In the fourth quarter of 2011, the Company recorded a goodwill impairment charge at its Tasiast and Chirano mines, totaling $2,937.6 million. During the fourth quarter of 2010, the Company recorded an impairment charge of $290.7 million related to property, plant and equipment at Fruta del Norte.

 
 
 

 
8.
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING

Pursuant to regulations adopted by the U.S. Securities and Exchange Commission, under the Sarbanes-Oxley Act of 2002 and those of the Canadian Securities Administrators, Kinross' management evaluates the effectiveness of the design and operation of the Company's disclosure controls and procedures, and internal controls over financial reporting. This evaluation is done under the supervision of, and with the participation of, the President and Chief Executive Officer and the Chief Financial Officer.
 
As of the end of the period covered by this MD&A and the accompanying unaudited interim condensed consolidated financial statements, Kinross’ management evaluated the effectiveness of its disclosure controls and procedures and internal control over financial reporting. Based on that evaluation, the President and Chief Executive Officer and the Chief Financial Officer have concluded that Kinross’ disclosure controls and procedures, and internal controls over financial reporting, provide reasonable assurance that they were effective as at June 30. During the six months ended June 30, 2012, Paracatu and the regional office in Belo Horizonte, Brazil, converted to a new version of their ERP system.  The conversions in the ERP system have not resulted in any significant changes in internal controls during the six months ended June 30, 2012.  Management employed appropriate procedures to ensure internal controls were in place during and after the conversion for both conversions.
 
Limitations of Controls and Procedures
 
Kinross’ management, including the CEO and the CFO, believes that any disclosure controls and procedures and internal controls over financial reporting, no matter how well designed and operated, can have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance that the objectives of the control system are met.

 
9.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND ACCOUNTING CHANGES

The preparation of the Company’s consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The critical estimates, assumptions and judgments applied in the preparation of the Company’s unaudited interim condensed consolidated financial statements are consistent with those applied and disclosed in the Company’s annual audited consolidated financial statements for the year ended December 31, 2011.  For a description of the Company’s critical estimates, assumptions, and judgments please refer to the Company’s annual audited consolidated financial statements for the year-ended December 31, 2011.
 
The accounting policies applied in the unaudited interim condensed consolidated financial statements are consistent with those used in the annual audited consolidated financial statements for the year ended December 31, 2011, with the exception of the following accounting policy adopted on January 1, 2012:

Financial instruments

IFRS 7 “Financial instruments – Disclosures” (“IFRS 7”) was amended by the IASB in October 2010 and provides guidance on identifying transfers of financial assets and continuing involvement in transferred assets for disclosure purposes.  The amendments introduce new disclosure requirements for transfers of financial assets including disclosures for financial assets that are not derecognized in their entirety, and for financial assets that are derecognized in their entirety but for which continuing involvement is retained. The amendments to IFRS 7 were effective for the Company, beginning on January 1, 2012.  There was no impact on the Company’s financial statements upon adoption of the amendments of IFRS 7.

 
10.
RISK ANALYSIS

The business of Kinross contains significant risk due to the nature of mining, exploration, and development activities. Certain risk factors are related to the mining industry in general while others are specific to Kinross. For a discussion of these risk factors and details on how Kinross seeks to mitigate these risks wherever possible, please refer to the Company's most recently filed Annual Information Form, which is available on the Company's web site www.kinross.com and on www.sedar.com or is available upon request from the Company.
 
 
 
 
 
 
11.
SUPPLEMENTAL INFORMATION

Reconciliation of non-GAAP financial measures

The Company has included certain non-GAAP financial measures in this document. These measures are not defined under IFRS and should not be considered in isolation.  The Company believes that these measures, together with measures determined in accordance with IFRS, provide investors with an improved ability to evaluate the underlying performance of the Company. The inclusion of these measures is meant to provide additional information and should not be used as a substitute for performance measures prepared in accordance with IFRS. These measures are not necessarily standard and therefore may not be comparable to other issuers.
 
Adjusted Net Earnings Attributed to Common Shareholders and Adjusted Net Earnings per Share

Adjusted net earnings attributed to common shareholders and adjusted net earnings per share are non-GAAP measures which determine the performance of the Company, excluding certain impacts which the Company believes are not reflective of the Company’s underlying performance for the reporting period, such as the impact of foreign exchange gains and losses, reassessment of prior year taxes and/or taxes otherwise not related to the current period, impairment charges, gains and losses and other one-time costs related to acquisitions, dispositions and other transactions, and non-hedge derivative gains and losses. Although some of the items are recurring, the Company believes that they are not reflective of the underlying operating performance of its current business and are not necessarily indicative of future operating results.  Management believes that these measures, which are used internally to assess performance and in planning and forecasting future operating results, provide investors with the ability to better evaluate underlying performance, particularly since the excluded items are typically not included in public guidance. However, adjusted net earnings and adjusted net earnings per share measures are not necessarily indicative of net earnings and earnings per share measures as determined under IFRS.
 
The following table provides a reconciliation of net earnings from continuing operations to adjusted net earnings from continuing operations for the periods presented:
 
   
Three months ended June 30,
    
Six months ended June 30,
  
(in millions)
                        
   
2012
    
2011
    
2012
    
2011
  
                         
Net earnings from continuing operations attributed to common shareholders - as reported
   $ 115.8     $ 244.3     $ 215.4     $ 490.5  
                                 
Adjusting items:
                                
Foreign exchange (gains) losses
     13.5       (7.4 )     6.2       (21.9 )
Non-hedge derivatives gains - net of tax
     (3.4 )     (7.6 )     (13.5 )     (48.6 )
(Gains) losses on acquisition/disposition of assets and investments - net of tax
     0.3       (0.4 )     0.3       (31.2 )
FX (gain) loss on translation of tax basis and FX on deferred income taxes within income tax expense
     9.6       (10.6 )     12.1       (1.6 )
Change in deferred tax due to a change in Ghanaian corporate income tax rate
     -       -       110.3       -  
Taxes in respect of prior years
     -       -       1.3       -  
Impairment of investments
     20.2       -       20.2       -  
Inventory fair value adjustment - net of tax
     -       4.3       -       7.0  
      40.2       (21.7 )     136.9       (96.3 )
Net earnings from continuing operations attributed to common shareholders - Adjusted
   $ 156.0     $ 222.6     $ 352.3     $ 394.2  
Weighted average number of common shares outstanding - Basic
     1,138.1       1,135.8       1,138.5       1,134.9  
Net earnings from continuing operations per share - Adjusted
   $ 0.14     $ 0.20     $ 0.31     $ 0.35  

 
 
 

Adjusted Operating Cash Flow

The Company makes reference to a non-GAAP measure for adjusted operating cash flow.  Adjusted operating cash flow is defined as cash flow from operations excluding certain impacts which the Company believes are not reflective of the Company’s regular operating cash flow and excluding changes in working capital.  Working capital can be volatile due to numerous factors, including the timing of tax payments, and in the case of Kupol, a build-up of inventory due to transportation logistics.  The Company uses adjusted operating cash flow internally as a measure of the underlying operating cash flow performance and future operating cash flow-generating capability of the Company.  However, the adjusted operating cash flow measure is not necessarily indicative of net cash flow from operations as determined under IFRS.
 
The following table provides a reconciliation of adjusted operating cash flow from continuing operations for the periods presented:
   
Three months ended June 30,
    
Six months ended June 30,
  
(in millions)
                        
   
2012
    
2011
    
2012
    
2011
  
                         
Net cash flow of continuing operations provided from operating activities - as reported
   $ 77.4     $ 346.6     $ 453.9     $ 687.2  
                                 
Adjusting items:
                                
 Close out and early settlement of derivative instruments
     (20.3 )     -       (48.7 )     -  
 Working capital changes:
                                
 Accounts receivable and other assets
     53.0       131.8       85.4       167.9  
 Inventories
     50.2       (11.7 )     48.6       2.5  
 Accounts payable and other liabilities, including taxes
     110.2       (61.9 )     52.0       (62.1 )
      193.1       58.2       137.3       108.3  
Adjusted operating cash flow from continuing operations
   $ 270.5     $ 404.8     $ 591.2     $ 795.5  

 
 
 

Consolidated and Attributable Production Cost of Sales per Equivalent Ounce Sold

Consolidated production cost of sales per gold equivalent ounce sold is a non-GAAP measure and is defined as production cost of sales as per the consolidated financial statements divided by the total number of gold equivalent ounces sold. This measure converts the Company’s non-gold production into gold equivalent ounces and credits it to total production.
 
Attributable production cost of sales per gold equivalent ounce sold is a non-GAAP measure and is defined as attributable production cost of sales divided by the attributable number of gold equivalent ounces sold. This measure converts the Company’s non-gold production into gold equivalent ounces and credits it to total production.
 
Management uses these measures to monitor and evaluate the performance of its operating properties.
   
Three months ended June 30,
    
Six months ended June 30,
  
(in millions)
                        
   
2012
    
2011
    
2012
    
2011
  
                         
Production cost of sales from continuing operations
   $ 464.9     $ 389.0     $ 917.5     $ 760.5  
Less: portion attributable to Kupol non-controlling interest (1)
     -       (4.1 )     -       (21.0 )
Less: portion attributable to Chirano non-controlling interest
     (4.9 )     (3.7 )     (10.3 )     (8.6 )
Attributable production cost of sales from continuing operations
   $ 460.0     $ 381.2     $ 907.2     $ 730.9  
                                 
Gold equivalent ounces sold from continuing operations
     640,836       688,282       1,253,188       1,393,240  
Less: portion attributable to Kupol non-controlling interest (1)
     -       (12,968 )     -       (63,803 )
Less: portion attributable to Chirano non-controlling interest
     (6,298 )     (5,656 )     (14,123 )     (12,610 )
Attributable gold equivalent ounces sold
     634,538       669,658       1,239,065       1,316,827  
Consolidated production cost of sales from continuing operations per equivalent ounce sold
   $ 725     $ 565     $ 732     $ 546  
Attributable production cost of sales from continuing operations per equivalent ounce sold
   $ 725     $ 569     $ 732     $ 555  
                                 
(1) On April 27, 2011, Kinross acquired the remaining 25% of CMGC, and thereby obtained 100% ownership of Kupol. As such, the results up to April 27, 2011 reflect 75% and results thereafter reflect 100%.
                                 

 
 
 
 
Production Cost of Sales per Ounce Sold on a By-Product Basis

Attributable production cost of sales per ounce sold on a by-product basis is a non-GAAP measure which calculates the Company’s non-gold production as a credit against its per ounce production costs, rather than converting its non-gold production into gold equivalent ounces and crediting it to total production, as is the case in co-product accounting. Management believes that this measure provides investors with the ability to better evaluate Kinross’ production cost of sales from continuing operations per ounce on a comparable basis with other major gold producers who routinely calculate their cost of sales per ounce using by-product accounting rather than co-product accounting.
 
The following table provides a reconciliation of attributable production cost of sales from continuing operations per ounce sold on a by-product basis for the periods presented:
   
Three months ended June 30,
    
Six months ended June 30,
  
(in millions)
                        
   
2012
    
2011
    
2012
    
2011
  
                         
Production cost of sales from continuing operations
   $ 464.9     $ 389.0     $ 917.5     $ 760.5  
Less: portion attributable to Kupol non-controlling interest (1)
     -       (4.1 )     -       (21.0 )
Less: portion attributable to Chirano non-controlling interest
     (4.9 )     (3.7 )     (10.3 )     (8.6 )
Less: attributable silver sales
   $ (72.0 )   $ (83.4 )   $ (158.2 )   $ (165.4 )
Attributable production cost of sales from continuing operations net of silver by-product revenue
   $ 388.0     $ 297.8     $ 749.0     $ 565.5  
                                 
Gold ounces sold
     595,654       605,729       1,156,807       1,226,923  
Less: portion attributable to Kupol non-controlling interest (1)
     -       (9,349 )     -       (49,299 )
Less: portion attributable to Chirano non-controlling interest
     (6,285 )     (5,625 )     (14,085 )     (12,552 )
Attributable gold ounces sold
     589,369       590,755       1,142,722       1,165,072  
Attributable production cost of sales from continuing operations per ounce sold on a by-product basis
   $ 658     $ 504     $ 655     $ 485  
                                 
(1) On April 27, 2011, Kinross acquired the remaining 25% of CMGC, and thereby obtained 100% ownership of Kupol. As such, the results up to April 27, 2011 reflect 75% and results thereafter reflect 100%.
  
                                 

 
 
 

Cautionary Statement on Forward-Looking Information
 
All statements, other than statements of historical fact, contained or incorporated by reference in this MD&A, but not limited to, any information as to the future financial or operating performance of Kinross, constitute ‘‘forward-looking information’’ or ‘‘forward-looking statements’’ within the meaning of certain securities laws, including the provisions of the Securities Act (Ontario) and the provisions for ‘‘safe harbour’’ under the United States Private Securities Litigation Reform Act of 1995 and are based on expectations, estimates and projections as of the date of this MD&A. Forward-looking statements include, without limitation, statements with respect to: possible events, the future price of gold and silver, the estimation of mineral reserves and mineral resources, the realization of mineral reserve and mineral resource estimates, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of projects and new deposits, success of exploration, development and mining activities, permitting timelines, currency fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. The words “aim”, ‘‘plans’’, “pursue”, ‘‘expects’’ or ‘‘does not expect’’, ‘‘is expected’’, ‘‘scheduled’’, “timeline” or “timetable”, ‘‘estimates’’, ‘‘forecasts”, “suggests”, “guidance”, “objective”, “opportunity”, “outlook”, “potential”, “prospects”, “seek”, “strategy”, “targets”, “models”, ‘‘anticipates’’, or ‘‘does not anticipate’’, or ‘‘believes’’, or variations of or similar such words and phrases or statements that certain actions, events or results ‘‘may’’, ‘‘could’’, ‘‘would’’, or ‘‘should’’, ‘‘might’’, or ‘‘will be taken’’, ‘‘occur’’ or ‘‘be achieved’’ and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by Kinross as of the date of such statements, are inherently subject to significant business, economic and competitive uncertainties and contingencies. The estimates, models and assumptions of Kinross referenced, contained or incorporated by reference in this MD&A, which may prove to be incorrect, include, but are not limited to, the various assumptions set forth herein and in our most recently filed Annual Information Form and our most recently filed MD&A as well as: (1) there being no significant disruptions affecting the operations of the Company or any entity in which it now or hereafter directly or indirectly holds an investment, whether due to labour disruptions, supply disruptions, power disruptions, damage to equipment or otherwise; (2) permitting, development, operations, expansion and acquisitions at Paracatu (including, without limitation, land acquisitions and permitting for the construction and operation of the new tailings facility) being consistent with our current expectations; (3) the viability, permitting and development of the Fruta del Norte deposit, and its continuing ownership by the Company, being consistent with Kinross’ current expectations; (4) political and legal developments in any jurisdiction in which the Company, or any entity in which it now or hereafter directly or indirectly holds an investment, operates being consistent with its current expectations including, without limitation, the implementation of Ecuador’s new mining and investment laws and related regulations and policies, and negotiation of an exploitation contract and an investment protection contract with the government, being consistent with Kinross’ current expectations; (5) the exchange rate between the Canadian dollar, Brazilian real, Chilean peso, Russian rouble, Mauritanian ouguiya, Ghanaian cedi and the U.S. dollar being approximately consistent with current levels; (6) certain price assumptions for gold and silver; (7) prices for natural gas, fuel oil, electricity and other key supplies being approximately consistent with current levels; (8) production and cost of sales forecasts for the Company, and entities in which it now or hereafter directly or indirectly holds an investment, meeting expectations; (9) the accuracy of the current mineral reserve and mineral resource estimates of the Company (including but not limited to ore tonnage and ore grade estimates) and any entity in which it now or hereafter directly or indirectly holds an investment; (10) labour and materials costs increasing on a basis consistent with Kinross’ current expectations; (11) the development of the Dvoinoye deposit being consistent with Kinross’ expectations; (12) the viability of the Tasiast and Chirano mines (including but not limited to, at Tasiast, the impact of ore tonnage and grade variability reconciliation analysis) as well as permitting, development and expansion (including but not limited to, at Tasiast, expansion optimization initiatives leading to changes in processing approach and maintenance and, as required, conversion of exploration licences to mining licences) of the Tasiast and Chirano mines being consistent with Kinross’ current expectations; (13) the terms and conditions of the legal and fiscal stability agreements for the Tasiast and Chirano operations being interpreted and applied in a manner consistent with their intent and Kinross’ expectations; (14) goodwill and/or asset impairment potential and (15) access to capital markets, including but not limited to maintaining an investment grade debt rating and securing partial project financing for the Dvoinoye, Fruta del Norte and the Tasiast expansion projects, being consistent with the Company’s current expectations. Known and unknown factors could cause actual results to differ materially from those projected in the forward-looking statements. Such factors include, but are not limited to: fluctuations in the currency markets; fluctuations in the spot and forward price of gold or certain other commodities (such as diesel fuel and electricity); increases in the discount rates applied to present value net future cash flows based on country-specific real weighted average cost of capital; declines in the market valuations of peer group gold producers and the Company, and the resulting impact on market price to net asset value multiples; changes in interest rates or gold or silver lease rates that could impact the mark-to-market value of outstanding derivative instruments and ongoing payments/receipts under any interest rate swaps and variable rate debt obligations; risks arising from holding derivative instruments (such as credit risk, market liquidity risk and mark-to-market risk); changes in national and local government legislation, taxation (including but not limited to income tax, advance income tax, stamp tax, withholding tax, capital tax, tariffs, value-added or sales tax, capital outflow tax, capital gains tax, windfall or windfall profits tax, royalty, excise tax, customs/import or export taxes/duties, asset taxes, asset transfer tax, property use or other real estate tax, together with any related fine, penalty, surcharge, or interest imposed in connection with such taxes), controls, policies and regulations; the security of personnel and assets; political or economic developments in Canada, the United States, Chile, Brazil, Russia, Ecuador, Mauritania, Ghana, or other countries in which Kinross, or entities in which it now or hereafter directly or indirectly holds an interest, do business or may carry on business; business opportunities that may be presented to, or pursued by, us; our ability to successfully integrate acquisitions and complete divestitures; operating or technical difficulties in connection with mining or development activities; employee relations; commencement of litigation against the Company including, but not limited to, securities class action in Canada and/or the U.S.; the speculative nature of gold exploration and development including, but not limited to, the risks of obtaining necessary licenses and permits; diminishing quantities or grades of reserves; adverse changes in our credit rating; and contests over title to properties, particularly title to undeveloped properties. In addition, there are risks and hazards associated with the business of gold exploration, development and mining, including environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins, flooding and gold bullion losses (and the risk of inadequate insurance, or the inability to obtain insurance, to cover these risks). Many of these uncertainties and contingencies can directly or indirectly affect, and could cause, Kinross’ actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, Kinross, including but not limited to resulting in an impairment charge on goodwill and/or assets. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are provided for the purpose of providing information about management’s expectations and plans relating to the future. All of the forward-looking statements made in this MD&A are qualified by these cautionary statements and those made in our other filings with the securities regulators of Canada and the United States including, but not limited to, the cautionary statements made in the ‘‘Risk Factors’’ section of our most recently filed Annual Information Form and MD&A. These factors are not intended to represent a complete list of the factors that could affect Kinross. Kinross disclaims any intention or obligation to update or revise any forward-looking statements or to explain any material difference between subsequent actual events and such forward-looking statements, except to the extent required by applicable law.
 
Key Sensitivities
 
Approximately 60%-70% of the Company's costs are denominated in US dollars.
 
A 10% change in foreign exchange could result in an approximate $5 impact in production cost of sales per ounce2.
 
A $10 per barrel change in the price of oil could result in an approximate $2 impact on production cost of sales per ounce.
 
The impact on royalties of a $100 change in the gold price could result in an approximate $4 impact on production cost of sales per ounce.
 
Other information
Where we say ‘‘we’’, ‘‘us’’, ‘‘our’’, the ‘‘Company’’, or ‘‘Kinross’’ in this MD&A, we mean Kinross Gold Corporation and/or one or more or all of its subsidiaries, as may be applicable.
 
The technical information about the Company’s material mineral properties (other than exploration activities) contained in this MD&A has been prepared under the supervision of Mr. Jim Fowler, an officer of the Company who is a “qualified person” within the meaning of National Instrument 43-101.The technical information about the Company’s drilling and exploration activities contained in this MD&A has been prepared under the supervision of Dr. Glen Masterman, an officer with the Company who is a “qualified person” within the meaning of National Instrument 43-101.
 
2 Refers to all of the currencies in the countries where the Company has mining operations, fluctuating simultaneously by 10% in the same direction, either appreciating or depreciating, taking into consideration the impact of hedging and the weighting of each currency within our consolidated cost structure.

 
 
 
 
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited expressed in millions of United States dollars, except share amounts)
 
               
     
As at
  
     
June 30,
    
December 31,
  
     
2012
    
2011
  
               
Assets
              
Current assets
              
Cash and cash equivalents
Note 5
   $ 1,340.3     $ 1,766.0  
Restricted cash
Note 5
     54.8       62.1  
Short-term investments
       -       1.3  
Accounts receivable and other assets
Note 5
     383.5       309.4  
Inventories
Note 5
     1,015.4       976.2  
Unrealized fair value of derivative assets
Note 6
     2.2       2.8  
        2,796.2       3,117.8  
Non-current assets
                  
Property, plant and equipment
Note 5
     9,638.2       8,959.4  
Goodwill
Note 5
     3,382.3       3,420.3  
Long-term investments
Note 5
     60.5       79.4  
Investments in associates
       511.1       502.5  
Unrealized fair value of derivative assets
Note 6
     4.0       1.1  
Deferred charges and other long-term assets
Note 5
     446.6       406.4  
Deferred tax assets
       35.5       21.9  
Total assets
     $ 16,874.4     $ 16,508.8  
                   
Liabilities
                  
Current liabilities
                  
Accounts payable and accrued liabilities
Note 5
   $ 596.0     $ 575.3  
Current tax payable
       142.0       82.9  
Current portion of long-term debt
Note 8
     475.9       32.7  
Current portion of provisions
Note 9
     35.3       38.1  
Current portion of unrealized fair value of derivative liabilities
Note 6
     51.5       66.7  
        1,300.7       795.7  
   Non-current liabilities
                  
   Long-term debt
Note 8
     1,147.7       1,600.4  
   Provisions
Note 9
     592.9       597.1  
   Unrealized fair value of derivative liabilities
Note 6
     27.9       32.7  
   Other long-term liabilities
       130.3       133.1  
   Deferred tax liabilities
       960.8       879.1  
Total liabilities
       4,160.3       4,038.1  
                   
Equity
                  
Common shareholders' equity
                  
Common share capital and common share purchase warrants
Note 10
   $ 14,680.6     $ 14,656.6  
Contributed surplus
       79.8       81.4  
Accumulated deficit
       (2,081.7 )     (2,249.9 )
Accumulated other comprehensive loss
Note 5
     (36.3 )     (97.7 )
Total common shareholders' equity
       12,642.4       12,390.4  
   Non-controlling interest
       71.7       80.3  
Total equity
       12,714.1       12,470.7  
Commitments and contingencies
Note 15
                
Total liabilities and equity
     $ 16,874.4     $ 16,508.8  
                   
Common shares
                  
Authorized
    
Unlimited
    
Unlimited
  
Issued and outstanding
       1,139,280,972       1,137,732,344  
                   
 
The accompanying notes are an integral part of these interim condensed consolidated financial statements

 
 
 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited expressed in millions of United States dollars, except share and per share amounts)
 
     
Three months ended
    
Six months ended
  
                           
     
June 30,
  
June 30,
    
June 30,
    
June 30,
  
     
2012
    
2011
    
2012
    
2011
  
           
Note 4
          
Note 4
  
Revenue
                          
Metal sales
     $ 1,006.7     $ 963.6     $ 2,014.8     $ 1,881.7  
                                   
Cost of sales
                                  
Production cost of sales
       464.9       389.0       917.5       760.5  
Depreciation, depletion and amortization
     157.0       146.3       299.7       297.0  
Total cost of sales
       621.9       535.3       1,217.2       1,057.5  
Gross profit
       384.8       428.3       797.6       824.2  
Other operating costs
       10.8       9.1       22.3       13.0  
Exploration and business development
     71.2       26.3       129.9       49.9  
General and administrative
     44.0       40.1       83.7       83.4  
Operating earnings
       258.8       352.8       561.7       677.9  
Other income (expense) - net
Note 5
     (28.5 )     17.0       (16.2 )     105.1  
Equity in gains (losses) of associates
Note 5
     (1.7 )     0.2       (2.9 )     -  
Finance income
       1.1       1.6       2.1       3.7  
Finance expense
Note 5
     (9.0 )     (16.0 )     (18.8 )     (32.3 )
Earnings before taxes
       220.7       355.6       525.9       754.4  
Income tax expense - net
Note 13
     (104.7 )     (97.5 )     (319.1 )     (209.1 )
Earnings from continuing operations after tax
     116.0       258.1       206.8       545.3  
Earnings from discontinued operations after tax
Note 4
     37.8       3.1       43.9       7.0  
Net earnings
     $ 153.8     $ 261.2     $ 250.7     $ 552.3  
                                   
Net earnings from continuing operations attributed to:
  
Non-controlling interest
     $ 0.2     $ 13.8     $ (8.6 )   $ 54.8  
Common shareholders
     $ 115.8     $ 244.3     $ 215.4     $ 490.5  
Net earnings attributed to:
                                
Non-controlling interest
     $ 0.2     $ 13.8     $ (8.6 )   $ 54.8  
Common shareholders
     $ 153.6     $ 247.4     $ 259.3     $ 497.5  
                                   
  Earnings per share from continuing operations attributable to common shareholders      
 
  
Basic
     $ 0.10     $ 0.22     $ 0.19     $ 0.43  
Diluted
     $ 0.10     $ 0.21     $ 0.19     $ 0.43  
Net earnings per share attributable to common shareholders
  
Basic
     $ 0.13     $ 0.22     $ 0.23     $ 0.44  
Diluted
     $ 0.13     $ 0.22     $ 0.23     $ 0.44  
Weighted average number of common shares outstanding (millions)
Note 12
    
 
                          
Basic
       1,138.1       1,135.8       1,138.5       1,134.9  
Diluted
       1,144.3       1,141.4       1,144.4       1,140.7  

The accompanying notes are an integral part of these interim condensed consolidated financial statements

 
 
 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited expressed in millions of United States dollars)
 
     
Three months ended
    
Six months ended
  
     
June 30,
    
June 30,
    
June 30,
    
June 30,
  
     
2012
    
2011
    
2012
    
2011
  
           
Note 4
          
Note 4
  
                           
Net earnings
     $ 153.8     $ 261.2     $ 250.7     $ 552.3  
                                   
Other comprehensive income (loss), net of tax:
Note 5
                                
Change in fair value of investments (a)
       (15.3 )     (18.5 )     (14.4 )     (9.2 )
Reclassification to earnings for impairment charges
     20.2       -       20.2       -  
Accumulated other comprehensive income related to investments sold (b)
     -       -       (0.1 )     (30.0 )
Changes in fair value of derivative financial instruments designated as cash flow hedges (c)
     (62.5 )     31.4       0.7       30.0  
Accumulated other comprehensive income related to derivatives settled (d)
     27.5       52.5       55.0       104.5  
        (30.1 )     65.4       61.4       95.3  
Total comprehensive income
     $ 123.7     $ 326.6     $ 312.1     $ 647.6  
                                   
Comprehensive income from continuing operations
   $ 85.9     $ 323.5     $ 268.2     $ 640.6  
Comprehensive income from discontinued operations
Note 4
     37.8       3.1       43.9       7.0  
Comprehensive income
     $ 123.7     $ 326.6     $ 312.1     $ 647.6  
                                   
Attributed to non-controlling interest
     $ 0.2     $ 13.8     $ (8.6 )   $ 54.8  
Attributed to common shareholders
     $ 123.5     $ 312.8     $ 320.7     $ 592.8  
                                   

(a) Net of tax of $(2.0) million, 3 months; $(2.2) million, 6 months (2011 – $(0.3) million, 3 months; $(0.2) million, 6 months)
(b) Net of tax of $nil, 3 months; $nil, 6 months (2011 - $nil, 3 months; $nil, 6 months)
(c) Net of tax of $(23.1) million, 3 months; $(2.7) million, 6 months (2011 - $10.6 million, 3 months; $16.3 million, 6 months)
(d) Net of tax of $3.8 million, 3 months; $3.6 million, 6 months (2011 - $(4.3) million, 3 months; $(6.1) million, 6 months)
 
The accompanying notes are an integral part of these interim condensed consolidated financial statements

 
 
 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited expressed in millions of United States dollars)

   
Three months ended
    
Six months ended
  
   
June 30,
    
June 30,
    
June 30,
    
June 30,
  
   
2012
    
2011
    
2012
    
2011
  
Net inflow (outflow) of cash related to the following activities:
    
Note 4
          
Note 4
  
                         
Operating:
                        
Net earnings from continuing operations
   $ 116.0     $ 258.1     $ 206.8     $ 545.3  
Adjustments to reconcile net earnings from continuing operations to net cash provided from (used in) operating activities:
      
 
  
Depreciation, depletion and amortization
     157.0       146.3       299.7       297.0  
(Gains) losses on acquisition/disposition of assets and investments - net
     0.5       (0.6 )     0.5       (31.4 )
Equity in (gains) losses of associates
     1.7       (0.2 )     2.9       -  
Non-hedge derivative gains - net
     (3.4 )     (7.1 )     (13.5 )     (48.1 )
Settlement of derivative instruments
     20.3       -       48.7       -  
Share-based compensation expense
     9.4       10.2       18.9       18.4  
Accretion expense
     5.3       13.8       10.7       26.5  
Deferred tax (recovery) expense
     (14.0 )     (19.0 )     83.5       (12.1 )
Foreign exchange (gains) losses and other
     (2.0 )     3.3       (18.3 )     (0.1 )
Changes in operating assets and liabilities:
                                
Accounts receivable and other assets
     (53.0 )     (131.8 )     (85.4 )     (167.9 )
Inventories
     (50.2 )     11.7       (48.6 )     (2.5 )
Accounts payable and accrued liabilities, excluding interest and taxes
     22.7       181.6       140.1       245.0  
Cash flow provided from operating activities
     210.3       466.3       646.0       870.1  
Income taxes paid
     (132.9 )     (119.7 )     (192.1 )     (182.9 )
Net cash flow of continuing operations provided from operating activities
     77.4       346.6       453.9       687.2  
Net cash flow of discontinued operations provided from operating activities
     9.6       14.7       14.8       9.2  
                                 
Investing:
                                
Additions to property, plant and equipment
     (431.2 )     (408.8 )     (961.4 )     (661.7 )
Net proceeds from the sale of long-term investments and other assets
     -       -       0.2       101.1  
Additions to long-term investments and other assets
     -       (64.7 )     (12.7 )     (76.5 )
Net proceeds from the sale of property, plant and equipment
     0.2       0.7       0.2       0.8  
Disposals (additions) of short-term investments
     0.2       (1.3 )     1.3       (1.3 )
Increase (decrease) in restricted cash
     0.4       (3.9 )     1.3       (3.9 )
Interest received
     1.2       0.7       2.1       1.9  
Other
     0.4       (2.7 )     0.1       (3.0 )
Net cash flow of continuing operations used in investing activities
     (428.8 )     (480.0 )     (968.9 )     (642.6 )
Net cash flow of discontinued operations provided from (used in) investing activities
     204.4       (14.1 )     198.9       (16.7 )
                                 
Financing:
                                
Issuance of common shares on exercise of options and warrants
     1.6       6.0       3.5       14.9  
Acquisition of CMGC 25% non-controlling interest
     -       (335.4 )     -       (335.4 )
Proceeds from issuance of debt
     168.9       99.6       296.3       192.6  
Repayment of debt
     (170.7 )     (111.1 )     (322.5 )     (215.6 )
Interest paid
     (1.6 )     (0.5 )     (4.8 )     (5.1 )
Dividends paid to common shareholders
     -       -       (91.1 )     (56.8 )
Settlement of derivative instruments
     -       (9.4 )     -       (19.7 )
Other
     (0.1 )     -       (0.8 )     (5.7 )
Net cash flow of continuing operations used in financing activities
     (1.9 )     (350.8 )     (119.4 )     (430.8 )
Net cash flow of discontinued operations used in financing activities
     (0.3 )     (0.7 )     (0.6 )     (1.4 )
Effect of exchange rate changes on cash and cash equivalents of continuing operations
     (7.0 )     3.8       (4.4 )     8.8  
Decrease in cash and cash equivalents
     (146.6 )     (480.5 )     (425.7 )     (386.3 )
Cash and cash equivalents, beginning of period
     1,486.9       1,560.8       1,766.0       1,466.6  
Cash and cash equivalents, end of period
   $ 1,340.3     $ 1,080.3     $ 1,340.3     $ 1,080.3  
                                 

The accompanying notes are an integral part of these interim condensed consolidated financial statements
 
 

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited expressed in millions of United States dollars)
 
   
Three months ended
    
Six months ended
  
   
June 30,
    
June 30,
    
June 30,
    
June 30,
  
   
2012
    
2011
    
2012
    
2011
  
                         
Common share capital and common share purchase warrants
                        
Balance beginning of period
   $ 14,676.1     $ 14,614.5     $ 14,656.6     $ 14,576.4  
Common shares issued on acquisition of properties
     -       -       -       3.8  
Common shares issued under employee share purchase plans
     1.8       1.5       3.6       3.1  
Transfer from contributed surplus on exercise of options and restricted shares
     2.3       6.6       19.3       31.4  
Options and warrants exercised, including cash
     0.4       5.0       1.1       12.9  
Balance at the end of the period
   $ 14,680.6     $ 14,627.6     $ 14,680.6     $ 14,627.6  
                                 
Contributed surplus
                                
Balance beginning of period
   $ 73.3     $ 168.3     $ 81.4     $ 185.5  
Share-based compensation
     8.8       9.7       17.7       17.3  
Acquisition of CMGC 25% non-controlling interest
     -       (92.9 )     -       (92.9 )
Transfer of fair value of exercised options and restricted shares
     (2.3 )     (6.6 )     (19.3 )     (31.4 )
Balance at the end of the period
   $ 79.8     $ 78.5     $ 79.8     $ 78.5  
                                 
Retained earnings (accumulated deficit)
                                
Balance beginning of period
   $ (2,235.3 )   $ 141.8     $ (2,249.9 )   $ (51.5 )
Dividends paid
     -       -       (91.1 )     (56.8 )
Net earnings attributed to common shareholders
     153.6       247.4       259.3       497.5  
Balance at the end of the period
   $ (2,081.7 )   $ 389.2     $ (2,081.7 )   $ 389.2  
                                 
Accumulated other comprehensive loss
                                
Balance beginning of period
   $ (6.2 )   $ (149.4 )   $ (97.7 )   $ (179.3 )
Other comprehensive income (loss)
     (30.1 )     65.4       61.4       95.3  
Balance at the end of the period
   $ (36.3 )   $ (84.0 )   $ (36.3 )   $ (84.0 )
Total retailed earnings (accumulated deficit) and accumulated other comprehensive loss
   $ (2,118.0 )   $ 305.2     $ (2,118.0 )   $ 305.2  
                                 
Total common shareholder's equity
   $ 12,642.4     $ 15,011.3     $ 12,642.4     $ 15,011.3  
                                 
Non-controlling interest
                                
Balance beginning of period
   $ 71.5     $ 303.2     $ 80.3     $ 262.2  
Net earnings (loss) attributed to non-controlling interest
     0.2       13.8       (8.6 )     54.8  
Acquisition of CMGC 25% non-controlling interest
     -       (242.5 )     -       (242.5 )
Balance at end of the period
   $ 71.7     $ 74.5     $ 71.7     $ 74.5  
                                 
Total Equity
   $ 12,714.1     $ 15,085.8     $ 12,714.1     $ 15,085.8  
                                 
 
The accompanying notes are an integral part of these interim condensed consolidated financial statements

 
 
 
 

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended June 30, 2012 and 2011
(Unaudited and expressed in millions of United States dollars)

1.
DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

Kinross Gold Corporation and its subsidiaries and joint ventures (collectively, "Kinross" or the "Company") are engaged in gold mining and related activities, including exploration and acquisition of gold-bearing properties, extraction and processing of gold-containing ore and reclamation of gold mining properties. Kinross Gold Corporation, the ultimate parent, is a public company incorporated and domiciled in Canada with a registered office at 25 York Street, 17th floor, Toronto, Ontario, Canada, M5J 2V5.  Kinross' gold production and exploration activities are carried out principally in Canada, the United States, the Russian Federation, Brazil, Ecuador, Chile, Ghana and Mauritania.   Gold is produced in the form of doré, which is shipped to refineries for final processing.  Kinross also produces and sells a quantity of silver.   The Company is listed on the Toronto Stock Exchange and the New York Stock Exchange.

The interim condensed consolidated financial statements of the Company for the period ended June 30, 2012 were authorized for issue in accordance with a resolution of the directors on August 8, 2012.

2.
BASIS OF PRESENTATION

These unaudited interim condensed consolidated financial statements (“interim financial statements”) have been prepared in accordance with IAS 34 “Interim Financial Reporting” (“IAS 34”). The accounting policies applied in these interim financial statements are consistent with those used in the annual audited consolidated financial statements for the year ended December 31, 2011. There have been no changes from the accounting policies applied in the December 31, 2011 financial statements, except as disclosed in note 3.

These interim financial statements do not include all disclosures required by International Financial Reporting Standards (“IFRS”) for annual audited consolidated financial statements and accordingly should be read in conjunction with the Company’s annual audited consolidated financial statements for the year ended December 31, 2011 prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”).

The preparation of these interim financial statements requires the use of certain significant accounting estimates and judgment by management in applying the Company’s accounting policies. The areas involving significant judgment and estimates have been set out in note 5 of the Company’s annual audited consolidated financial statements for the year ended December 31, 2011.

3.
ACCOUNTING CHANGES

The Company’s policies in effect for 2012 are noted in the Company’s annual audited consolidated financial statements for the year ended December 31, 2011, with the exception of the following accounting policy adopted in 2012:

Financial instruments

IFRS 7 “Financial instruments – Disclosures” (“IFRS 7”) was amended by the IASB in October 2010 and provides guidance on identifying transfers of financial assets and continuing involvement in transferred assets for disclosure purposes.  The amendments introduce new disclosure requirements for transfers of financial assets including disclosures for financial assets that are not derecognized in their entirety, and for financial assets that are derecognized in their entirety but for which continuing involvement is retained.

The amendments to IFRS 7 were effective for the Company beginning on January 1, 2012.  There was no impact on the Company’s financial statements upon adoption of the amendments of IFRS 7.
 
 
 
 
 
4.
DISPOSITION OF INTEREST IN CRIXÁS GOLD MINE

On June 28, 2012, the Company completed the sale of its 50% interest in the Crixás gold mine (Serra Grande) to a subsidiary of AngloGold Ashanti Ltd. for gross cash proceeds of $220.0 million, resulting in an after-tax gain on disposal of $33.8 million.  AngloGold Ashanti Ltd. previously owned the remaining 50% of Crixás gold mine and is the operator of the mine.

As Crixás was a component of the Company, clearly distinguished operationally and for financial reporting purposes from the rest of the Company, the disposal was considered a discontinued operation. Results, including the gain on disposal, and cash flows of the discontinued operation have been presented separately in the interim condensed consolidated statements of operations and cash flows, and comparative periods have been recast accordingly.

Earnings from discontinued operations

   
Three months ended
    
Six months ended
  
                         
   
June 30,
    
June 30,
    
June 30,
    
June 30,
  
   
2012
    
2011
    
2012
    
2011
  
Results of discontinued operations
                        
Revenues
   $ 25.2     $ 24.2     $ 53.7     $ 43.1  
Expenses
     18.7       19.7       37.2       32.4  
Earnings before taxes
     6.5       4.5       16.5       10.7  
Income tax expense
     (2.5 )     (1.4 )     (6.4 )     (3.7 )
Net earnings before disposals
     4.0       3.1       10.1       7.0  
Gain on sale of discontinued operations
     96.2       -       96.2       -  
Income tax on sale of discontinued operations
     (62.4 )     -       (62.4 )     -  
Earnings from discontinued operations after tax
   $ 37.8     $ 3.1     $ 43.9     $ 7.0  
                                 

The Company’s interest in the significant assets and liabilities of the Crixás mine at the date of disposal was as follows:

   
June 28,
  
   
2012
  
       
Cash and cash equivalents
   $ 12.2  
Accounts receivable and other assets
     17.2  
Inventories
     9.8  
Property, plant and equipment
     93.7  
Goodwill
     38.0  
Deferred charges and other long-term assets
     2.9  
Accounts payable and accrued liabilities
     (9.9 )
Current tax payable
     (25.8 )
Other long-term liabilities
     (14.3 )
Net assets
   $ 123.8  
         
Consideration received, satisfied in cash
   $ 220.0  
Cash and cash equivalents disposed of
     (12.2 )
Net cash inflow
   $ 207.8  
         
 
 
 
 
 
 
5. INTERIM CONSOLIDATED FINANCIAL STATEMENT DETAILS

Interim Consolidated Balance Sheets

 
i.
Cash and cash equivalents:

   
June 30,
    
December 31,
  
   
2012
    
2011
  
Cash on hand and balances with banks
   $ 554.2     $ 761.3  
Short-term deposits
     786.1       1,004.7  
    $ 1,340.3     $ 1,766.0  
                 

         Restricted cash:

   
June 30,
    
December 31,
  
   
2012
    
2011
  
Restricted cash (a)
   $ 54.8     $ 62.1  
                 

(a) Restricted cash relates to restricted payments for the Kupol project financing (see Note 8 (iv)), loan escrow judicial deposits and letters of guarantee for default protection and environmental indemnity.

ii.           Accounts receivable and other assets:

   
June 30,
    
December 31,
  
   
2012
    
2011
  
Trade receivables
   $ 11.3     $ 20.2  
Taxes recoverable
     59.7       70.0  
Prepaid expenses
     125.6       48.8  
VAT receivable
     127.0       115.3  
Other
     59.9       55.1  
    $ 383.5     $ 309.4  
                 
 
 
 
 
 
 
iii.
Inventories:

   
June 30,
    
December 31,
  
   
2012
    
2011
  
Ore in stockpiles(a)
   $ 151.2     $ 146.6  
Ore on leach pads (b)
     263.0       220.8  
In-process
     45.5       35.3  
Finished metal
     91.8       108.3  
Materials and supplies
     549.9       562.2  
      1,101.4       1,073.2  
Long-term portion of ore in stockpiles and ore on leach pads (a),(b)
     (86.0 )     (97.0 )
    $ 1,015.4     $ 976.2  
                 

 
(a)
Ore in stockpiles relates to the Company’s operating mines. Ore in stockpiles includes low-grade material not scheduled for processing within the next twelve months which is included in deferred charges and other long-term assets on the interim condensed consolidated balance sheet. See deferred charges and other long-term assets, Note 5 (vii).
 
(b)
Ore on leach pads relates to the Company's Maricunga, Tasiast, Fort Knox, and 50% owned Round Mountain mines. Based on current mine plans, the Company expects to place the last tonne of ore on its leach pads at Maricunga in 2027, Tasiast in 2020, Fort Knox in 2020, and 50% owned Round Mountain in 2019. Ore on leach pads includes material not scheduled for processing within the next twelve months which is included in deferred charges and other long-term assets on the interim condensed consolidated balance sheet. See deferred charges and other long-term assets, Note 5 (vii).
 
 
 
 
 
 
iv.
Property, plant and equipment:
 
         
Mineral Interests (b)
        
   
Land, plant and equipment
    
Development and operating properties
    
Pre-development properties
    
Total
  
Cost
                        
Balance at January 1, 2012
   $ 4,234.2     $ 7,389.7     $ 170.0     $ 11,793.9  
Additions
     763.2       280.3       -       1,043.5  
Acquisitions
     -       -       -       -  
Capitalized interest
     26.7       19.1       -       45.8  
Disposals (c)
     (80.8 )     (131.4 )     -       (212.2 )
Other
     13.8       (14.5 )     -       (0.7 )
Balance at June 30, 2012
     4,957.1       7,543.2       170.0       12,670.3  
                                 
Accumulated depreciation, depletion, amortization and impairment
                  
Balance at January 1, 2012
   $ (1,518.1 )   $ (1,316.4 )   $ -     $ (2,834.5 )
Depreciation, depletion and amortization
     (139.3 )     (175.5 )     -       (314.8 )
Disposals (c)
     40.3       77.3       -       117.6  
Other
     (6.4 )     6.0       -       (0.4 )
Balance at June 30, 2012
     (1,623.5 )     (1,408.6 )     -       (3,032.1 )
                                 
Net book value
   $ 3,333.6     $ 6,134.6     $ 170.0     $ 9,638.2  
                                 
Amount included above as at June 30, 2012:
                          
Assets under construction
   $ 1,454.5     $ 665.6     $ -     $ 2,120.1  
Net book value of finance leases
   $ 19.2     $ -     $ -     $ 19.2  
Assets not being depreciated (a)
   $ 1,755.2     $ 2,699.3     $ 170.0     $ 4,624.5  
                                 

 
(a)
Assets not being depreciated relate to land, capitalized exploration and evaluation costs, assets under construction, which are the construction of expansion projects, and other assets that are in various stages of being readied for use.
 
(b)
At June 30, 2012, the significant development and operating properties include Fort Knox, Round Mountain, Paracatu, La Coipa, Maricunga, Kupol, Dvoinoye, Kettle River-Buckhorn, Tasiast, Chirano, Fruta del Norte, and Lobo-Marte. Included in pre-development properties is White Gold.
 
(c)
On June 28, 2012, the Company disposed of its interest in Crixás. See Note 4.

 
 
 

         
Mineral Interests(b)
        
   
Land, plant and equipment
    
Development and operating properties
    
Pre-development properties
    
Total
  
Cost
                        
Balance at January 1, 2011
   $ 3,236.3     $ 6,426.5     $ 527.5     $ 10,190.3  
Additions
     1,052.3       586.6       11.9       1,650.8  
Acquisitions
     -       -       3.8       3.8  
Capitalized interest
     7.3       19.2       -       26.5  
Disposals
     (64.2 )     (8.7 )     (0.4 )     (73.3 )
Transfers
     -       369.6       (369.6 )     -  
Other
     2.5       (3.5 )     (3.2 )     (4.2 )
Balance at December 31, 2011
     4,234.2       7,389.7       170.0       11,793.9  
                                 
Accumulated depreciation, depletion, amortization and impairment
                  
Balance at January 1, 2011
   $ (1,315.2 )   $ (990.5 )   $ -     $ (2,305.7 )
Depreciation, depletion and amortization
     (257.9 )     (330.3 )     -       (588.2 )
Disposals
     55.3       10.5       -       65.8  
Other
     (0.3 )     (6.1 )     -       (6.4 )
Balance at December 31, 2011
     (1,518.1 )     (1,316.4 )     -       (2,834.5 )
                                 
Net book value
   $ 2,716.1     $ 6,073.3     $ 170.0     $ 8,959.4  
                                 
Amount included above as at December 31, 2011:
                          
Assets under construction
   $ 1,012.6     $ 549.7     $ -     $ 1,562.3  
Net book value of finance leases
   $ 12.8     $ -     $ -     $ 12.8  
Assets not being depreciated (a)
   $ 1,118.6     $ 2,379.6     $ 170.0     $ 3,668.2  
                                 
 
 
(a)
Assets not being depreciated relate to land, capitalized exploration and evaluation costs, assets under construction, which are the construction of expansion projects, and other assets that are in various stages of being readied for use.
 
(b)
At December 31, 2011, the significant development and operating properties include Fort Knox, Round Mountain, Paracatu, La Coipa, Maricunga, Crixás, Kupol, Dvoinoye, Kettle River-Buckhorn, Tasiast, Chirano, Fruta del Norte, and Lobo-Marte. Included in pre-development properties is White Gold. Dvoinoye was transferred from pre-development properties to development and operating properties upon the declaration of proven and probable reserves as at the end of 2011.
 
Land, plant and equipment with a carrying amount of $217.2 million (December 31, 2011 - $231.3 million) are pledged as security as part of the Kupol project financing. See Note 8 (iv).

Capitalized interest relates to capital expenditures at Fort Knox, Kettle River-Buckhorn, Round Mountain, Maricunga, La Coipa, Lobo-Marte, Fruta del Norte, Paracatu, Kupol, Chirano and Tasiast and had a weighted average rate of 1.7% and 3.3% during the three and six months ended June 30, 2012, respectively (three and six months ended June 30, 2011 – 2.4% and 4.7%, respectively).

At June 30, 2012, $932.3 million of exploration and evaluation (“E&E”) assets were included in mineral interests (December 31, 2011 - $923.9 million).  During the six months ended June 30, 2012, the Company acquired $nil of E&E assets, capitalized $8.4 million in E&E costs and transferred $nil from E&E assets to capitalized development.  The Company did not recognize any property, plant and equipment impairment related to E&E assets as at June 30, 2012 (December 31, 2011 - $nil).

During the three and six months ended June 30, 2012, the Company expensed $3.5 million and $6.2 million (three and six months ended June 30, 2011 – $3.4 million and $6.4 million), respectively, of exploration and evaluation expenditures. The Company had cash expenditures for exploration and evaluation included in operating cash flows for the three and six months ended June 30, 2012 of $3.5 million and $6.2 million (three and six months ended June 30, 2011 – $3.4 million and $6.4 million), respectively, and investing cash flows for the three and six months ended June 30, 2012 of $8.1 million and $8.4 million (three and six months ended June 30, 2011 – $24.6 million and $46.2 million), respectively.
 
 
 
 
 
The following table shows capitalized stripping costs included in development and operating properties for the six months ended June 30, 2012 and year ended December 31, 2011:
 
   
June 30, 2012
  
   
Round Mountain
    
Fort Knox
    
La Coipa
    
Maricunga
    
Chirano
    
Tasiast
    
Total
  
Balance at January 1, 2012
   $ 74.4     $ 97.2     $ 47.5     $ 54.1     $ 13.0     $ 37.7     $ 323.9  
Additions
     15.7       30.3       17.6       21.7       11.3       59.4       156.0  
Amortization
     (5.1 )     (0.3 )     (2.4 )     (1.0 )     (6.1 )     (0.5 )     (15.4 )
Balance at June 30, 2012
   $ 85.0     $ 127.2     $ 62.7     $ 74.8     $ 18.2     $ 96.6     $ 464.5  
                                                         

   
December 31, 2011
  
   
Round Mountain
    
Fort Knox
    
La Coipa
    
Maricunga
    
Chirano
    
Tasiast
    
Total
  
Balance at January 1, 2011
   $ 78.2     $ 58.9     $ -     $ 5.8     $ 2.4     $ -     $ 145.3  
Additions
     11.1       49.8       48.7       49.7       14.5       38.0       211.8  
Amortization
     (14.9 )     (11.5 )     (1.2 )     (1.4 )     (3.9 )     (0.3 )     (33.2 )
Balance at December 31, 2011
   $ 74.4     $ 97.2     $ 47.5     $ 54.1     $ 13.0     $ 37.7     $ 323.9  
                                                         
 
 
 
 
 
 
v.
Goodwill:

The goodwill allocated to the Company's cash generating units (“CGUs”) and included in the respective operating segment assets is shown in the table below:

   
Round Mountain
    
Paracatu
    
La Coipa
    
Kettle River - Buckhorn
    
Kupol
    
Maricunga
      
Crixás(c)
Tasiast
      
Chirano
    
Other Operations (b)
    
Total
  
                                             
 
    
 
              
Cost
                                                                  
   Balance at January 1, 2012
   $ 145.9     $ 164.9     $ 190.3     $ 20.9     $ 827.2     $ 396.1     $ 80.5     $ 4,620.4     $ 918.6     $ 282.2     $ 7,647.0  
      Acquisitions
     -       -       -       -       -       -       -       -       -       -       -  
      Disposals
     -       -       -       -       -       -       (80.5 )     -       -       -       (80.5 )
Balance at June 30, 2012
   $ 145.9     $ 164.9     $ 190.3     $ 20.9     $ 827.2     $ 396.1     $ -     $ 4,620.4     $ 918.6     $ 282.2     $ 7,566.5  
                                                                                         
Accumulated impairment
                                                                                        
   Balance at January 1, 2012
   $ (87.2 )   $ (99.4 )   $ (65.9 )   $ -     $ (668.4 )   $ (220.2 )   $ (42.5 )   $ (2,490.1 )   $ (447.5 )   $ (105.5 )   $ (4,226.7 )
      Impairment loss
     -       -       -       -       -       -       -       -       -       -       -  
      Disposals
     -       -       -       -       -       -       42.5       -       -       -       42.5  
Balance at June 30, 2012
   $ (87.2 )   $ (99.4 )   $ (65.9 )   $ -     $ (668.4 )   $ (220.2 )   $ -     $ (2,490.1 )   $ (447.5 )   $ (105.5 )   $ (4,184.2 )
                                                                                         
Carrying amount
   $ 58.7     $ 65.5     $ 124.4     $ 20.9     $ 158.8     $ 175.9     $ -     $ 2,130.3     $ 471.1     $ 176.7     $ 3,382.3  
                                                                                         
 
   
Round Mountain
    
Paracatu
    
La Coipa
    
Kettle River - Buckhorn
    
Kupol
    
Maricunga
    
Crixás
      
Tasiast
      
Chirano
    
Other Operations(b)
    
Total
  
                                             
 
    
 
              
Cost
                                                                  
   Balance at January 1, 2011
   $ 145.9     $ 164.9     $ 190.3     $ 20.9     $ 827.2     $ 396.1     $ 80.5     $ 4,620.4     $ 918.6     $ 282.2     $ 7,647.0  
      Acquisitions
     -       -       -       -       -       -       -       -       -       -       -  
      Disposals
     -       -       -       -       -       -       -       -       -       -       -  
Balance at December 31, 2011
   $ 145.9     $ 164.9     $ 190.3     $ 20.9     $ 827.2     $ 396.1     $ 80.5     $ 4,620.4     $ 918.6     $ 282.2     $ 7,647.0  
                                                                                         
Accumulated impairment
                                                                                        
   Balance at January 1, 2011
   $ (87.2 )   $ (99.4 )   $ (65.9 )   $ -     $ (668.4 )   $ (220.2 )   $ (42.5 )   $ -     $ -     $ (105.5 )   $ (1,289.1 )
      Impairment loss (a)
     -       -       -       -       -       -       -       (2,490.1 )     (447.5 )     -       (2,937.6 )
      Disposals
     -       -       -       -       -       -       -       -       -       -       -  
Balance at December 31, 2011
   $ (87.2 )   $ (99.4 )   $ (65.9 )   $ -     $ (668.4 )   $ (220.2 )   $ (42.5 )   $ (2,490.1 )   $ (447.5 )   $ (105.5 )   $ (4,226.7 )
                                                                                         
Carrying amount
   $ 58.7     $ 65.5     $ 124.4     $ 20.9     $ 158.8     $ 175.9     $ 38.0     $ 2,130.3     $ 471.1     $ 176.7     $ 3,420.3  
                                                                                         

 
(a)
At December 31, 2011, as part of the annual impairment test for goodwill, it was determined that the carrying amounts of goodwill at Tasiast and Chirano exceeded their recoverable amounts.
 
(b)
At June 30, 2012 and December 31, 2011, other operations includes goodwill related to Quebrada Seca with a carrying amount of $168.8 million and Jiboia with a carrying amount of $7.9 million.
 
(c)
On June 28, 2012, the Company disposed of its interest in Crixás. As a result, goodwill was reduced by $38.0 million which represents the carrying amount of goodwill previously allocated to Crixás. See Note 4.
 
 
 
 
 
 
vi.
Long-term investments:

Unrealized gains and losses on investments classified as available-for-sale investments are recorded in OCI as follows:

   
June 30, 2012
    
December 31, 2011
  
   
Fair value
    
Gains (losses) in AOCI
    
Fair value
    
Gains (losses) in AOCI
  
Securities in an unrealized gain position
   $ 32.4     $ 12.9     $ 46.5     $ 26.9  
Securities in an unrealized loss position
     28.1       (3.2 )     32.9       (22.9 )
    $ 60.5     $ 9.7     $ 79.4     $ 4.0  
                                 

 
vii.
Deferred charges and other long-term assets:

   
June 30,
    
December 31,
  
   
2012
    
2011
  
Long-term portion of ore in stockpiles and ore on leach pads (a)
   $ 86.0     $ 97.0  
Deferred charges, net of amortization
     7.3       7.3  
Long-term receivables
     139.0       97.4  
Advances for the purchase of capital equipment
     171.0       178.2  
Other
     43.3       26.5  
    $ 446.6     $ 406.4  
                 

 
(a)
Ore in stockpiles and on leach pads represents low-grade material not scheduled for processing within the next twelve months. Long-term ore in stockpiles is at the Company’s Fort Knox, Kupol, and Paracatu mines. Long-term ore on leach pads is at the Company’s 50% owned Round Mountain mine.

 
viii.
 Accounts payable and accrued liabilities:

   
June 30,
    
December 31,
  
   
2012
    
2011
  
Trade payables
   $ 116.8     $ 151.0  
Accrued liabilities
     401.0       353.3  
Employee related accrued liabilities
     78.2       71.0  
    $ 596.0     $ 575.3  
                 

 
ix.
Accumulated other comprehensive income (loss):

   
Investments (a)
    
Financial derivatives (b)
    
Total
  
Balance at January 1, 2011
   $ 71.1     $ (250.4 )   $ (179.3 )
Other comprehensive income (loss) before tax
     (71.3 )     118.7       47.4  
Tax
     4.2       30.0       34.2  
Balance at January 1, 2012
   $ 4.0     $ (101.7 )   $ (97.7 )
Other comprehensive income before tax
     3.5       56.6       60.1  
Tax
     2.2       (0.9 )     1.3  
Balance at June 30, 2012
   $ 9.7     $ (46.0 )   $ (36.3 )
                         

 
(a)
Balance at January 1, 2011 net of tax of $4.0 million
 
(b)
Balance at January 1, 2011 net of tax of $(0.3) million
 
 
 
 
 
Interim Consolidated Statements of Operations

 
x.
 Other income (expense)  – net:

   
Three months ended June 30,
    
Six months ended June 30,
  
   
2012
    
2011
    
2012
    
2011
  
                         
Gains (losses) on acquisition/disposition of investments - net:
                    
Harry Winston (a)
   $ -     $ -     $ -     $ 30.9  
Other investments
     0.1       -       0.1       (0.9 )
Gains (losses) on sale of other assets - net
     (0.6 )     0.6       (0.6 )     1.4  
Gains (losses) on acquisition/disposition of assets and investments - net
   $ (0.5 )   $ 0.6     $ (0.5 )   $ 31.4  
Impairment of investments (b)
     (20.2 )     -       (20.2 )     -  
Foreign exchange gains (losses)
     (13.5 )     7.4       (6.2 )     21.9  
Net non-hedge derivative gains
     3.4       7.1       13.5       48.1  
Other income (expense)
     2.3       1.9       (2.8 )     3.7  
    $ (28.5 )   $ 17.0     $ (16.2 )   $ 105.1  
                                 

 
(a)
On March 23, 2011, the Company sold its remaining interest in Harry Winston.
 
(b)
At June 30, 2012, the Company wrote-down certain of its available-for-sale investments.

 
xi.
 Equity in gains (losses) of associates:

   
Three months ended June 30,
Six months ended June 30,
   
2012
  
2011
  
2012
  
2011
  
Cerro Casale(a)
  
 $                  (1.7)
  
 $                    0.2
  
 $                (2.9)
  
 $                 -
  
                   

(a)           The Company holds a 25% interest in Cerro Casale and the investment is accounted for under the equity method.

 
xii.
 Finance expense:

   
Three months ended June 30,
    
Six months ended June 30,
  
   
2012
    
2011
    
2012
    
2011
  
Accretion on reclamation and remediation obligation
   $ 4.4     $ 5.5     $ 8.7     $ 10.6  
Interest expense, including accretion on debt (a)
     4.6       10.5       10.1       21.7  
    $ 9.0     $ 16.0     $ 18.8     $ 32.3  
                                 

 
(a)
During the three and six months ended June 30, 2012, $23.5 million and $45.8 million (three and six months ended June 30, 2011 - $2.9 million and $3.2 million), respectively, of interest was capitalized to property, plant and equipment. See Note 5(iv).

Interest paid during the three and six months ended June 30, 2012 was $1.6 million and $34.7 million, respectively (three and six months ended June 30, 2011 - $0.5 million and $5.1 million, respectively).
 
 
 
 
 
6.   FINANCIAL INSTRUMENTS

Fair value estimates for derivative contracts are based on quoted market prices for comparable contracts and represent the amount the Company would have received from, or paid to, a counterparty to unwind the contract at the market rates in effect at the interim condensed consolidated balance sheet date.

Derivative instruments

   
June 30, 2012
  
December 31, 2011
  
   
Asset/ (Liability)
  
AOCI
    
Asset/ (Liability)
  
AOCI
  
     Fair Value
 
      Fair Value
 
  
Interest rate contract
                    
   Interest rate swap
   $ -     $ -     $ (0.1 )   $ -  
                                 
Currency contracts
                          
   Foreign currency forward contracts(a)
     (58.4 )     (40.2 )     (75.1 )     (54.4 )
                                 
Commodity contracts
                          
   Gold and silver forward contracts
     -       -       -       (48.6 )
   Energy forward contracts(b)
     (7.2 )     (5.8 )     1.6       1.3  
                                 
Other contracts
                                
   Total return swap
     0.1       -       (0.7 )     -  
                                 
Canadian dollar denominated common share purchase warrants liability 
     (7.5 )     -       (18.6 )     -  
                                 
Senior convertible notes - conversion option 
     (0.2 )     -       (2.6 )     -  
                                 
Total all contracts
   $ (73.2 )   $ (46.0 )   $ (95.5 )   $ (101.7 )
                                 
Unrealized fair value of derivative assets
  
   Current
     2.2               2.8          
   Non-current
     4.0               1.1          
    $ 6.2             $ 3.9          
Unrealized fair value of derivative liabilities
  
   Current
     (51.5 )             (66.7 )        
   Non-current
     (27.9 )             (32.7 )        
    $ (79.4 )           $ (99.4 )        
                                 
Total net fair value
   $ (73.2 )           $ (95.5 )        
                                 

 
(a)
Of the total amount recorded in AOCI, $25.1 million will be reclassified to net earnings within the next 12 months as a result of settling the contracts.
 
(b)
Of the total amount recorded in AOCI, $4.3 million will be reclassified to net earnings within the next 12 months as a result of settling the contracts.

During 2008, the Company entered into an interest rate swap in order to fix the interest rates on 50% of the Paracatu term loan, maturing in February 2012. Under the contract, Kinross Brasil Mineração S.A., a wholly-owned subsidiary of the Company, was to pay a rate of 3.83% and receive LIBOR plus 1%. The Paracatu term loan was repaid in February 2012, and accordingly, the interest rate swap was settled.

Canadian dollar denominated common share purchase warrants liability

The Company’s Canadian dollar denominated common share purchase warrants are considered derivative instruments and are measured at fair value on initial recognition and subsequently at each reporting date, with changes in fair value recognized in the interim condensed consolidated statement of operations.  For the three and six months ended June 30, 2012, the Company recognized a gain of $3.0 million and $11.1 million, respectively (three and six months ended June 30, 2011 – a gain of $6.5 million and $24.8 million, respectively) in the interim condensed consolidated statement of operations.

Senior convertible notes - conversion option

The Company’s option to settle its convertible notes in cash or shares upon conversion causes the conversion option to be considered an embedded derivative which is recognized at fair value on initial recognition and subsequently at each reporting date with changes in the fair value recognized in the interim condensed consolidated statement of operations.   For the three and six months ended June 30, 2012, the Company recognized a gain of $0.4 million and $2.4 million, respectively (three and six months ended June 30, 2011 – a gain of $1.9 million and $28.3 million, respectively) in the interim condensed consolidated statement of operations.
 
 
 
 
 
7.
CAPITAL AND FINANCIAL RISK MANAGEMENT

The Company manages its capital to ensure that it will be able to continue to meet its financial and operational strategies and obligations, while maximizing the return to shareholders through the optimization of debt and equity financing. The Board of Directors has established a number of quantitative measures related to the management of capital. Management continuously monitors its capital position and periodically reports to the Board of Directors.

The Company is sensitive to changes in commodity prices, foreign exchange and interest rates.  The Company manages its exposure to changes in currency exchange rates, energy and interest rates by periodically entering into derivative financial instrument contracts in accordance with the formal risk management policy approved by the Company’s Board of Directors. The Company’s policy is to not hedge metal sales. However in limited circumstances the Company may use derivative contracts to hedge against the risk of falling prices for a portion of its forecasted metal sales. The Company may also assume derivative contracts as part of a business acquisition or they may be required under financing arrangements.

All of the Company’s hedges are cash flow hedges.  The Company applies hedge accounting whenever hedging relationships exist and have been documented.

Capital management

The Company’s objectives when managing capital are to:

 
·
Ensure the Company has sufficient cash available to support the mining, exploration, and other areas of the business in any gold price environment;
·     Ensure the Company has the capital and capacity to support a long-term growth strategy;
·     Provide investors with a superior rate of return on their invested capital;
·     Ensure compliance with all bank covenant ratios; and
·     Minimize counterparty credit risk.

Kinross adjusts its capital structure based on changes in forecasted economic conditions and based on its long term strategic business plan.  Kinross has the ability to adjust its capital structure by issuing new equity, drawing on existing credit facilities, issuing new debt, and by selling or acquiring assets.  Kinross can also control how much capital is returned to shareholders through dividends and share buybacks.

The Company is not subject to any externally imposed capital requirements, other than the requirement to maintain a minimum tangible net worth under the terms of its revolving credit facility agreement, as disclosed in note 8.

The Company’s quantitative capital management objectives are largely driven by the requirements under its debt agreements and are noted in the tables below:

   
June 30,
    
December 31,
  
   
2012
    
2011
  
Long-term debt
   $ 1,147.7     $ 1,600.4  
Current portion of long-term debt
     475.9       32.7  
Total debt
     1,623.6       1,633.1  
Common shareholders' equity
     12,642.4       12,390.4  
Gross debt / common shareholders' equity ratio
     12.8 %     13.2 %
Company target
     0 – 30 %     0 – 30 %
Rolling 12 month EBITDA(a)
   $ 1,895.5     $ 2,033.4  
Rolling 12 month interest expense(b)
     101.6       71.2  
Interest coverage ratio
  
18.7:1
    
28.6:1
  
Company target ratio
  
> 4.25:1
    
> 4.25 :1
  

 
(a)
EBITDA is a defined term under the Company’s current credit facility.
 
(b)
Interest expense includes interest expense included in finance expense on the interim condensed consolidated statement of operations in addition to capitalized interest.
 
 
 
 
 
8.
LONG-TERM DEBT AND CREDIT FACILIITIES

           
June 30, 2012
    
December 31, 2011
  
     
Interest Rates
     Nominal Amount     Deferred Financing Costs     Carrying Amount (a)    
Fair
Value
    
Carrying Amount (a)
    
Fair
Value
  
                                             
Corporate revolving credit facility
(i)
  
Variable
     $ -     $ -     $ -     $ -     $ -     $ -  
Corporate term loan facility
(i)
  
Variable
       -       -       -               22.4       22.3  
Senior convertible notes
(ii)
    1.75 %     436.5       -       436.5       460.0       420.7       457.3  
Senior notes
(iii)
    3.625%-6.875 %     993.1       (10.7 )     982.4       1,000.5       981.4       986.1  
Kupol project loan
(iv)
  
Variable
       200.0       (4.8 )     195.2       195.2       194.1       194.1  
Finance leases
(v)
    5.00%-5.62 %     9.5       -       9.5       9.6       12.8       13.1  
Crixás bank loan and other
    
Variable
       -       -       -               1.7       1.7  
                1,639.1       (15.5 )     1,623.6       1,665.3       1,633.1       1,674.6  
Less: current portion
               (475.9 )     -       (475.9 )     (475.9 )     (32.7 )     (32.7 )
Long-term debt
             $ 1,163.2     $ (15.5 )   $ 1,147.7     $ 1,189.4     $ 1,600.4     $ 1,641.9  
                                                           

(a)    Includes transaction costs on debt financings.

 
i.
Corporate revolving credit and term loan facilities

In November 2009, the Company entered into an amended revolving credit facility which provided credit of $450.0 million on an unsecured basis and was to expire in November 2012. The term loan (corporate term loan facility) for the Paracatu property formed part of the amended revolving credit facility, and that credit is now available to the Company as the term loan has been repaid.

On June 17, 2010, the Company entered into a further amendment to increase availability under the facility to $600.0 million.  On September 17, 2010, the revolving credit facility was further amended to add Mauritania, Ghana, and Côte d’Ivoire as permitted jurisdictions as a result of the Red Back Mining Inc. (“Red Back”) acquisition. All other terms and conditions under the existing revolving credit facility remained unchanged.

On March 31, 2011, the Company entered into a further amendment to increase the availability under the facility to $1,200.0 million. The term of the facility was also extended from November 2012 to March 2015.

As at June 30, 2012, the Company had drawn $42.8 million (December 31, 2011 – $55.5 million) on the amended revolving credit facility.  The entire amount drawn was for letters of credit (December 31, 2011 – $55.5 million including drawings for the Paracatu term loan and $32.8 million for letters of credit). The Paracatu term loan was repaid in full during the first quarter of 2012.

The amended revolving credit facility agreement contains various covenants including limits on indebtedness, asset sales and liens. Significant financial covenants include a minimum tangible net worth of $5,250.0 million and increasing by 50% of positive net income each quarter, starting with the quarter ending March 31, 2011, (previously $3,345.3 million starting September 30, 2009 and increasing by 50% of positive net income each quarter), an interest coverage ratio of at least 4.25:1, and net debt to EBITDA, as defined in the agreement, of no more than 3.5:1. The Company is in compliance with these covenants at June 30, 2012.

Loan interest is variable, set at LIBOR plus an interest rate margin which is dependent on the ratio of the Company’s net debt to EBITDA as defined in the agreement.

The Company’s current ratio of net debt to EBITDA at June 30, 2012, as defined in the agreement, is less than 1.00:1.   At this ratio, interest charges are as follows:

Type of credit
Credit facility
Dollar based LIBOR loan
LIBOR plus 1.75%
Letters of credit
1.75%
Standby fee applicable to unused availability
0.44%
 
 
 
 
 
 
ii.
Senior convertible notes

In January 2008, the Company completed a public offering of $460.0 million senior convertible notes due March 15, 2028, each in the amount of one thousand dollars.  The notes will pay interest semi-annually at a rate of 1.75% per annum.  The notes will be convertible, at the holder’s option, equivalent to a conversion price of $27.64 per share of common stock subject to adjustment.  Kinross received net proceeds of $449.9 million from the offering of convertible notes, after payment of the commissions of the initial purchasers and expenses of the offering.  The convertible notes are convertible into Kinross common shares at a fixed conversion rate, subject to certain anti-dilution adjustments, only in the event that (i) the market price of Kinross common shares exceeds 130% of the effective conversion price of the convertible notes, (ii) the trading price of the convertible notes falls below 98% of the amount equal to Kinross’ then prevailing common share price, times the applicable conversion rate, (iii) the convertible notes are called for redemption, (iv) upon the occurrence of specified corporate transactions or (v) if Kinross common shares cease to be listed on a specified stock exchange or eligible for trading on an over-the-counter market.  The convertible notes will also be convertible on and after December 15, 2027.  The convertible senior notes are redeemable by the Company, in whole or part, for cash at any time on or after March 20, 2013, at a redemption price equal to par plus accrued and unpaid interest, if any, to the redemption date.  Holders of the convertible notes will have the right to require Kinross to repurchase the convertible notes on March 15, 2013, 2018 and 2023, and, on or prior to March 20, 2013, upon certain fundamental changes.  The redemption price will be equal to 100% of the principal amount of the convertible notes plus accrued and unpaid interest to the redemption date, if any.
 
 
iii.
Senior notes

On August 22, 2011, the Company completed a $1.0 billion offering of debt securities consisting of  $250.0 million principal amount of 3.625% senior notes due 2016, $500.0 million principal amount of  5.125% senior notes due 2021 and $250.0 million principal amount of  6.875% senior notes due 2041 (collectively, the “notes”).  The notes pay interest semi-annually.  Kinross received net proceeds of $980.9 million from the offering, after discount, payment of the commissions to the initial purchasers and expenses directly related to the offering.  Except as noted below, the notes are redeemable by the Company, in whole or part, for cash at any time prior to maturity, at a redemption price equal to the greater of 100% of the principal amount or the sum of the present value of the remaining scheduled principal and interest payments on the notes discounted at the applicable treasury rate, as defined in the indenture, plus a premium of between 40 and 50 basis points, plus accrued interest, if any.  Within three months and six months of maturity of the notes due in 2021 and 2041, respectively, the Company can only redeem the notes in whole at 100% of the principal amount plus accrued interest, if any.   In addition, the Company is required to make an offer to repurchase the notes prior to maturity upon certain fundamental changes at a redemption price equal to 101% of the principal amount of the notes plus accrued and unpaid interest to the redemption date, if any.
 
 
iv.
Kupol project financing

On December 21, 2011, the Company completed a $200.0 million non-recourse loan from a group of international financial institutions. The non-recourse loan carries a term of five years, maturing on September 30, 2016 and bears annual interest of LIBOR plus 2.5%. Semi-annual principal repayments of $30.0 million will commence in March 2013 and continue through September 30, 2015. Principal repayments due on March 31, 2016 and September 30, 2016 are reduced to $13.0 million and $7.0 million, respectively. The Company may prepay the loan in whole or in part, without penalty, but subject to customary break costs, if any. The agreement contains various requirements that include limits on distributions if certain minimum debt service coverage levels are not achieved. Land, plant and equipment with a carrying amount of $217.2 million (December 31, 2011 - $231.3 million) are pledged as security as part of the Kupol project financing.

As at June 30, 2012, cash of $34.0 million (December 31, 2011 - $34.0 million) was restricted for payments related to this loan.

 
v.
Finance leases

At June 30, 2012, the Company had equipment under finance leases totaling $9.5 million (December 31, 2011 - $12.8 million). Repayments on the finance leases end in 2013.
 
 
vi.
Other

In November 2009, the Company entered into a separate Letter of Credit guarantee facility with Export Development Canada for $125.0 million. Letters of credit guaranteed by this new facility are solely for reclamation liabilities at Fort Knox, Round Mountain, and Kettle River–Buckhorn. Fees related to letters of credit under this facility are 1.00% to 1.25%.
 
On July 30, 2010, the Company entered into an amendment to increase the amount of the Letter of Credit guarantee facility from $125.0 million to $136.0 million.
 
On June 15, 2012 the Company entered into a further amendment of the Letter of Credit guarantee facility to increase the amount from $136.0 million to $200.0 million and extend the maturity date to March 31, 2015. All other terms and conditions under this agreement remain the same. As at June 30, 2012, the amount outstanding under this facility was $164.4 million (December 31, 2011 - $135.1 million).
 
In addition, at June 30, 2012, the Company had approximately $40.6 million (December 31, 2011 - $41.0 million) in letters of credit outstanding, in respect of its operations in Brazil, Mauritania and Ghana. These letters of credit have been issued pursuant to arrangements with certain international banks.
 
From time to time, the Company’s operations in Brazil may borrow US dollars from Brazilian banks on a short-term unsecured basis to meet working capital requirements. As at June 30, 2012 and December 31, 2011, $nil was outstanding under such borrowings.
 
 
 
 
 
9.
PROVISIONS

   
Reclamation and remediation obligations (i)
    
Other
    
Total
  
Balance at January 1, 2012
   $ 598.6     $ 36.6     $ 635.2  
   Additions
     -       3.1       3.1  
   Reductions
     (12.4 )     (2.7 )     (15.1 )
   Reclamation spending
     (3.9 )     -       (3.9 )
   Accretion
     8.9       -       8.9  
Balance at June 30, 2012
   $ 591.2     $ 37.0     $ 628.2  
                         
Current portion
     35.1       0.2       35.3  
Non-current portion
     556.1       36.8       592.9  
    $ 591.2     $ 37.0     $ 628.2  
                         

 
i.
Reclamation and remediation obligations

The Company conducts its operations so as to protect the public health and the environment, and to comply with all applicable laws and regulations governing protection of the environment.  Reclamation and remediation obligations arise throughout the life of each mine.  The Company estimates future reclamation costs based on the level of current mining activity and estimates of costs required to fulfill the Company’s future obligation.  The above table details the items that affect the reclamation and remediation obligations. The reduction reflects the elimination of the obligation related to the Crixás mine. See Note 4.

Regulatory authorities in certain jurisdictions require that security be provided to cover the estimated reclamation and remediation obligations. As at June 30, 2012, letters of credit totaling $203.0 million (December 31, 2011 – $170.8 million) had been issued to various regulatory agencies to satisfy financial assurance requirements for this purpose. The letters of credit were issued against the Company's Letter of Credit guarantee facility with Export Development Canada, the revolving credit facility, and pursuant to arrangements with certain international banks. The Company is in compliance with all applicable requirements under these facilities.
 
 
 
 
 
10.
COMMON SHARE CAPITAL AND COMMON SHARE PURCHASE WARRANTS

The authorized share capital of the Company is comprised of an unlimited number of common shares without par value. A summary of common share transactions for the six months ended June 30, 2012 and year ended December 31, 2011 is as follows:


   
Six months ended June 30, 2012
    
Year ended December 31, 2011
  
   
Number of shares
    
Amount ($)
    
Number of shares
    
Amount ($)
  
   
('000's)
          
('000's)
        
Common shares
                        
Balance at January 1,
     1,137,732     $ 14,494.6       1,133,295     $ 14,414.2  
Issued:
                                
On acquisition of properties
     -       -       223       3.8  
Under employee share purchase plan
     389       3.6       421       6.2  
Under stock option and restricted share plan
     943       16.4       1,405       26.2  
Under Aurelian options
     -       -       377       6.1  
Under Bema options
     -       -       22       0.3  
Under Underworld options
     62       1.1       28       0.6  
Under Red Back options
     155       2.9       1,850       35.6  
Conversions:
                                
Bema warrants
     -       -       111       1.6  
Balance, at end of period
     1,139,281     $ 14,518.6       1,137,732     $ 14,494.6  
                                 
Common share purchase warrants (a)
                                
Balance at January 1,
     45,454     $ 162.0       50,262     $ 162.2  
Conversion of warrants
     -       -       (111 )     (0.2 )
Expiry of warrants
     -       -       (4,697 )     -  
Balance, at end of period
     45,454     $ 162.0       45,454     $ 162.0  
Total common share capital and common share purchase warrants
           $ 14,680.6             $ 14,656.6  
                                 

(a)   Amount includes only the value of the U.S. dollar denominated warrants.  Canadian dollar denominated warrants are considered an embedded derivative and classified as a liability (see Note 6).
 
 
 
 
 
 
i.
Dividends on common shares

The following summarizes dividends paid during the six months ended June 30, 2012. There were no dividends declared but unpaid at June 30, 2012.

On August 8, 2012, the Board of Directors declared a dividend of $0.08 per common share to shareholders of record on September 21, 2012.

   
Per share
    
Total amount ($ millions)
  
             
Dividends paid during the period:
   $ 0.08     $ 91.1  
                 

 
ii.
Common share purchase warrants

The Company has issued both Canadian dollar denominated and U.S. dollar denominated common share purchase warrants.

 
(a)
Canadian dollar denominated common share purchase warrants

A summary of the status of the common share purchase warrants and changes during the six months ended June 30, 2012 is as follows:

   
Share equivalents of warrants ('000's)
    
Weighted average exercise price (CDN$/warrant)
  
Balance at January 1, 2012
     19,695     $ 32.00  
Issued
     -       -  
Exercised
     -       -  
Balance at June 30, 2012
     19,695     $ 32.00  
                 

These Canadian dollar denominated common share purchase warrants are classified as a liability (see Note 6).

 
(b)
U.S. dollar denominated common share purchase warrants

A summary of the status of the common share purchase warrants and changes during the six months ended June 30, 2012 is as follows:

   
Share equivalents of warrants ('000's)
    
Weighted average exercise price ($/warrant)
  
Balance at January 1, 2012
     25,759     $ 21.30  
Issued
     -       -  
Exercised
     -       -  
Balance at June 30, 2012
     25,759     $ 21.30  
                 
 
 
 
 
 
11.
SHARE-BASED PAYMENTS

 
i.
Stock option plan

The following table summarizes information about the stock options outstanding and exercisable at June 30, 2012:

Canadian $ denominated options
  
 
Six months ended June 30, 2012
   
Number of options (000's)
 
  Weighted average exercise price (CDN$)
 
Balance at January 1
                   13,728
   $
15.85
  
Granted
                     2,789
    
                     10.78
  
Exercised
                      (217)
    
                       4.96
  
Forfeited
                      (414)
    
                     16.81
  
Expired
                   (1,366)
    
                     20.30
  
Outstanding at end of period
                   14,520
   $
14.59
  
           
Exercisable at end of period
                   10,154
   $
15.19
  
           

The following weighted average assumptions were used in computing the fair value of stock options granted during the six months ended June 30, 2012:

   
2012
  
Black-Scholes weighted-average assumptions:
  
   Weighted average share price  (CDN$)
   $ 10.78  
   Expected dividend yield
     1.49 %
   Expected volatility
     41.9 %
   Risk-free interest rate
     1.4 %
   Estimated forfeiture rate
     3.0 %
   Expected option life in years
     4.5  
Weighted average fair value per stock option granted (CDN$)
   $ 3.44  
         

The expected volatility used in the Black-Scholes option pricing model is based on the historical volatility of the Company’s shares.
 
 
 
 
 
 
ii.
Restricted share unit plan

           
    Six months ended June 30, 2012
 
 
Number of units (000's)
 
 
Weighted average exercise price (CDN$/unit)
 
 
Balance at January 1
                     2,554
   $
17.43
  
Granted
                     2,664
    
                     10.65
  
Reinvested
                          34
    
                     13.26
  
Redeemed
                      (927)
    
                     18.58
  
Forfeited
                      (284)
    
                     14.10
  
Outstanding at end of period
                     4,041
   $
12.89
  
           

 
iii.
Restricted performance share unit plan

             
   
Six months ended June 30, 2012
  
   
Number of units (000's)
     Weighted average exercise price (CDN$/unit)  
Balance at January 1
     548     $ 17.38  
Granted
     668       10.87  
Reinvested
     10       13.53  
Redeemed
     (16 )     22.65  
Forfeited
     (61 )     17.03  
Outstanding at end of period
     1,149     $ 13.51  
                 
 
 
iv.
Deferred share unit plan

   
Six months ended June 30, 2012
  
DSUs granted (000's)
     79  
Weighted average grant-date fair value per unit (CDN$)
   $ 8.91  

There were 393,657 DSUs outstanding, for which the Company had recognized a liability of $3.2 million, as at June 30, 2012 (December 31, 2011 - $3.6 million).

v.           Employee share purchase plan

   
Six months ended June 30, 2012
  
Common shares issued (000's)
     389  
Average price of shares issued ($/unit)
   $ 9.28  
 
 
 
 
 
12.
EARNINGS PER SHARE

Basic and diluted net earnings from continuing operations attributed to common shareholders of Kinross for the three and six months ended June 30, 2012 was $115.8 million and $215.4 million, respectively (three and six months ended June 30, 2011 - $244.3 million and $490.5 million, respectively). Basic and diluted net earnings attributed to common shareholders of Kinross for the three and six months ended June 30, 2012 was $153.6 million and $259.3 million, respectively (three and six months ended June 30, 2011 - $247.4 million and $497.5 million, respectively).

(Number of common shares in thousands)
Three months ended June 30,
Six months ended June 30,
 
2012
2011
  
2012
  
2011
Basic weighted average shares outstanding:
          1,138,122
          1,135,778
  
      1,138,518
  
       1,134,906
Weighted average shares dilution adjustments:
            
  Stock options (a)
                    923
                 2,379
  
             1,177
  
              2,761
  Restricted shares
                 4,078
                 2,665
  
             3,735
  
              2,560
  Performance shares
                 1,168
                    551
  
                996
  
                 450
  Common share purchase warrants (a)
                         -
                      10
  
                    -
  
                   16
Diluted weighted average shares outstanding
          1,144,291
          1,141,383
  
      1,144,426
  
       1,140,693
             
Weighted average shares dilution adjustments - exclusions: (b)
          
  Stock options
               11,861
               10,801
  
           11,841
  
              8,046
  Common share purchase warrants
               45,455
               50,152
  
           45,455
  
            50,152
  Convertible notes
               53,647
               29,932
  
           47,080
  
            29,037

 
(a)
Dilutive stock options and warrants were determined using the Company’s average share price for the period.  For the three and six months ended June 30, 2012, the average share price used was $8.57 and $9.77, respectively (three and six months ended June 30, 2011: $15.37 and $15.84  per share, respectively) .
 
(b)
These adjustments were excluded, as they were anti-dilutive.
 
13.
INCOME TAX EXPENSE

During the first quarter of 2012 the Ghanaian corporate income tax rate was increased from 25% to 35%. As a result, this higher rate was applied to taxable temporary differences relating to our Ghanaian operations which increased deferred tax liabilities and deferred income tax expense by $110.3 million, which has been recorded in the total income tax expense of $319.1 million.
 
 
 
 

14.
SEGMENTED INFORMATION

The Company operates primarily in the gold mining industry and its major product is gold. Its activities include gold production, acquisition, exploration and development of gold properties.  The Company’s primary mining operations are in the United States, the Russian Federation, Brazil, Ecuador, Chile, Ghana and Mauritania.

The reportable segments are those operations whose operating results are reviewed by the Chief Executive Officer to make decisions about resources to be allocated to the segment and assess its performance provided those operations pass certain quantitative thresholds.  Operations whose revenues, earnings or losses or assets exceed 10% of the total consolidated revenue, earnings or losses or assets are reportable segments.

In order to determine reportable operating segments, management reviewed various factors, including geographical location and managerial structure.  It was determined by management that a reportable operating segment consists of an individual mining property managed by a single general manager and management team.  Certain properties that are in development or have not reached commercial production levels are considered reportable segments because they have reached quantitative thresholds.  These have been identified as non-operating segments.  There are no material intersegment transactions. Finance income, finance expense, other income (expense) - net, and equity in gains/(losses) of associates are managed on a consolidated basis and are not allocated to operating segments.
 
Non-mining and other operations are reported in Corporate and other.
 
On June 28, 2012, the Company completed the sale of its 50% interest in the Crixás gold mine to a subsidiary of AngloGold Ashanti Ltd. for gross cash proceeds of $220.0 million, resulting in an after-tax gain on disposal of $33.8 million. As a result, Crixás is no longer a reportable segment, and is considered a discontinued operation. See Note 4.

 
i.
Operating segments

The following tables set forth operating results by reportable segment for the following periods:

   
Operating segments
    
Non-operating segments(a)
  
Three months ended June 30, 2012:
  
Fort Knox
    
Round Mountain
    
Paracatu
    
La Coipa
    
Maricunga
    
Kupol
    
Kettle River-Buckhorn
    
Tasiast
    
Chirano
    
Fruta del Norte
        
Corporate and other (b)
  
 
Total
  
Revenue
                                                                        
   Metal sales
   $ 116.6       84.9       189.0       48.0       98.6       230.0       64.1       74.0       101.5       -       -     $ 1,006.7  
                                                                                                 
Cost of sales
                                                                                                
Production cost of sales
     54.5       34.7       108.2       35.7       44.5       73.2       20.5       44.5       49.1       -       -       464.9  
Depreciation, depletion and amortization
     11.3       8.4       19.2       6.2       5.5       29.4       18.2       19.9       36.9       -       2.0       157.0  
Total cost of sales
     65.8       43.1       127.4       41.9       50.0       102.6       38.7       64.4       86.0       -       2.0       621.9  
Gross profit (loss)
   $ 50.8       41.8       61.6       6.1       48.6       127.4       25.4       9.6       15.5       -       (2.0 )   $ 384.8  
Other operating costs (income)
     -       -       (1.6 )     0.1       -       0.1       (0.2 )     5.9       1.4       0.1       5.0       10.8  
Exploration and business development
     1.5       -       0.3       2.7       0.2       5.6       5.1       28.1       3.6       0.6       23.5       71.2  
General and administrative
     -       -       -       -       -       2.3       -       -       -       -       41.7       44.0  
Operating earnings (loss)
   $ 49.3       41.8       62.9       3.3       48.4       119.4       20.5       (24.4 )     10.5       (0.7 )     (72.2 )   $ 258.8  
   Other expense – net
                                                                                             (28.5 )
   Equity in losses of associates
                                                                                             (1.7 )
   Finance income
                                                                                             1.1  
   Finance expense
                                                                                             (9.0 )
Earnings from continuing operations before taxes
                                                                             $ 220.7  
Earnings from discontinued operations before taxes (d)
                                                                             $ 102.7  
                                                                                                 

 
 
 
 
                                                                         
   
Operating segments
    
Non-operating segments(a)
  
Three months ended June 30, 2011:
  
Fort Knox
    
Round Mountain
    
Paracatu
    
La Coipa
    
Maricunga
    
Kupol (c)
    
Kettle River-Buckhorn
    
Tasiast
    
Chirano
    
Fruta del Norte
        
Corporate and other (b)(c)
  
 
  
Total
  
Revenue
                                                                        
Metal sales
   $ 117.4       71.4       144.2       70.9       95.5       239.7       68.9       70.1       85.5       -       -     $ 963.6  
                                                                                                 
Cost of sales
                                                                                                
Production cost of sales
     52.4       34.7       77.1       40.5       26.2       69.1       18.3       33.6       37.1       -       -       389.0  
Depreciation, depletion and amortization
     17.2       7.2       14.3       8.1       7.1       37.0       20.0       14.5       19.3       -       1.6       146.3  
Total cost of sales
     69.6       41.9       91.4       48.6       33.3       106.1       38.3       48.1       56.4       -       1.6       535.3  
Gross profit
   $ 47.8       29.5       52.8       22.3       62.2       133.6       30.6       22.0       29.1       -       (1.6 )   $ 428.3  
Other operating costs (income)
     0.1       -       1.7       -       -       (0.1 )     (0.8 )     0.9       0.8       0.1       6.4       9.1  
Exploration and business development
     2.5       0.1       0.1       0.8       -       0.5       1.7       2.5       1.9       0.5       15.7       26.3  
General and administrative
     -       -       0.7       -       -       0.1       -       -       -       -       39.3       40.1  
Operating earnings (loss)
   $ 45.2       29.4       50.3       21.5       62.2       133.1       29.7       18.6       26.4       (0.6 )     (63.0 )   $ 352.8  
Other income – net
                                                                                             17.0  
Equity in gains of associates
                                                                                             0.2  
Finance income
                                                                                             1.6  
Finance expense
                                                                                             (16.0 )
Earnings from continuing operations before taxes
                                                                             $ 355.6  
Earnings from discontinued operations before taxes (d)
                                                                             $ 4.5  
                                                                                                 

(a) Non-operating segments include development properties.
(b) Includes corporate, Cerro Casale, shutdown and other non-operating assets (including Lobo-Marte and White Gold).
(c) As of December 31, 2011, Dvoinoye was reclassified into the Kupol segment. The comparative figures have been reclassified to conform to the 2012 segment presentation.
(d) On June 28, 2012, the Company disposed of its interest in Crixás. See Note 4.

 
 
 

   
Operating segments
    
Non-operating segments (a)
  
Six months ended June 30, 2012:
  
Fort Knox
    
Round Mountain
    
Paracatu
    
La Coipa
    
Maricunga
    
Kupol
    
Kettle River-Buckhorn
    
Tasiast
    
Chirano
    
Fruta del Norte
    
Corporate and other (b)
    
Total
  
Revenue
                                                                        
Metal sales
   $ 219.3       158.9       376.3       122.3       213.9       415.6       131.1       143.4       234.0       -       -     $ 2,014.8  
                                                                                                 
Cost of sales
                                                                                                
Production cost of sales
     106.5       71.9       213.6       80.2       88.2       134.4       39.5       80.4       102.8       -       -       917.5  
Depreciation, depletion and amortization
     20.4       16.2       33.8       10.7       11.8       53.0       37.1       33.7       78.7       -       4.3       299.7  
Total cost of sales
     126.9       88.1       247.4       90.9       100.0       187.4       76.6       114.1       181.5       -       4.3       1,217.2  
Gross profit
   $ 92.4       70.8       128.9       31.4       113.9       228.2       54.5       29.3       52.5       -       (4.3 )   $ 797.6  
Other operating costs (income)
     -       -       (0.6 )     0.1       0.2       0.2       (0.2 )     9.8       1.6       0.1       11.1       22.3  
Exploration and business development
     2.4       1.0       0.6       5.6       0.4       10.1       9.6       50.0       6.3       1.4       42.5       129.9  
General and administrative
     -       -       -       -       -       2.3       -       -       -       -       81.4       83.7  
Operating earnings (loss)
   $ 90.0       69.8       128.9       25.7       113.3       215.6       45.1       (30.5 )     44.6       (1.5 )     (139.3 )   $ 561.7  
Other expense – net
                                                                                             (16.2 )
Equity in losses of associates
                                                                                             (2.9 )
Finance income
                                                                                             2.1  
Finance expense
                                                                                             (18.8 )
Earnings from continuing operations before taxes
                                                                             $ 525.9  
Earnings from discontinued operations before taxes (d)
                                                                             $ 112.7  
                                                                                                 

 
 
 

                                                                         
   
Operating segments
    
Non-operating segments(a)
  
Six months ended June 30, 2011:
  
Fort Knox
    
Round Mountain
    
Paracatu
    
La Coipa
    
Maricunga
    
Kupol (c)
    
Kettle River-Buckhorn
    
Tasiast
    
Chirano
    
Fruta del Norte
    
Corporate and other(b)(c)
    
Total
  
Revenue
                                                                        
Metal sales
   $ 207.1       129.5       294.4       150.9       175.2       465.3       135.3       141.7       182.3       -       -     $ 1,881.7  
                                                                                                 
Cost of sales
                                                                                                
Production cost of sales
     93.0       67.6       151.6       78.0       53.1       134.6       36.2       60.2       86.2       -       -       760.5  
Depreciation, depletion and amortization
     32.2       13.8       28.7       18.6       8.9       76.5       41.8       30.3       43.5       -       2.7       297.0  
Total cost of sales
     125.2       81.4       180.3       96.6       62.0       211.1       78.0       90.5       129.7       -       2.7       1,057.5  
Gross profit
   $ 81.9       48.1       114.1       54.3       113.2       254.2       57.3       51.2       52.6       -       (2.7 )   $ 824.2  
Other operating costs (income)
     0.1       -       2.0       -       0.1       0.4       (1.8 )     1.2       0.9       0.1       10.0       13.0  
Exploration and business development
     2.8       0.2       0.1       2.5       0.1       0.6       2.5       5.2       3.3       2.0       30.6       49.9  
General and administrative
     -       -       0.7       -       -       0.1       -       -       -       0.1       82.5       83.4  
Operating earnings (loss)
   $ 79.0       47.9       111.3       51.8       113.0       253.1       56.6       44.8       48.4       (2.2 )     (125.8 )   $ 677.9  
Other income – net
                                                                                             105.1  
Equity in losses of associates
                                                                                             -  
Finance income
                                                                                             3.7  
Finance expense
                                                                                             (32.3 )
Earnings from continuing operations before taxes
                                                                             $ 754.4  
Earnings from discontinued operations before taxes (d)
                                                                             $ 10.7  
                                                                                                 

(a) Non-operating segments include development properties.
(b) Includes corporate, Cerro Casale, shutdown and other non-operating assets (including Lobo-Marte and White Gold).
(c) As of December 31, 2011, Dvoinoye was reclassified into the Kupol segment. The comparative figures have been reclassified to conform to the 2012 segment presentation.
(d) On June 28, 2012, the Company disposed of its interest in Crixás . See Note 4.

 
 
 

   
Operating segments
    
Non-operating segments(a)
        
   
Fort Knox
    
Round Mountain
    
Paracatu
    
La Coipa
    
Maricunga
    
Kupol
    
Kettle River-Buckhorn
    
Tasiast
    
Chirano
    
Fruta del Norte
    
Corporate and other (b)
    
Discontinued operations (e)
    
Total
  
Property, plant and equipment at:
                                                                              
June 30, 2012
   $ 449.0       226.3       1,710.6       187.5       573.9       1,112.7       136.5       2,792.1       1,175.7       679.9       594.0       -     $ 9,638.2  
                                                                                                         
Total assets at:
                                                                                                        
June 30, 2012
   $ 620.6       336.4       2,024.0       463.4       963.0       2,014.8       176.0       5,377.2       1,792.2       688.4       2,418.4       -     $ 16,874.4  
                                                                                                         
Capital expenditures for three months ended June 30, 2012(d)
   $ 49.4       22.5       83.7       22.9       59.0       47.0       3.2       204.5       22.0       18.1       19.4       3.6     $ 555.3  
                                                                                                         
Capital expenditures for six months ended June 30, 2012(d)
   $ 74.2       36.1       158.3       38.2       94.6       86.9       3.7       464.5       44.5       41.7       39.2       7.4     $ 1,089.3  
                                                                                                         
 
 
 
 
 
   
Operating segments
    
Non-operating segments(a)
        
   
Fort Knox
    
Round Mountain
    
Paracatu
    
La Coipa
    
Maricunga
    
Kupol (c)
    
Kettle River-Buckhorn
    
Tasiast
    
Chirano
    
Fruta del Norte
    
Corporate and other(b)(c)
    
Discontinued operations (e)
    
Total
  
Property, plant and equipment at:
                                                                              
December 31, 2011
   $ 394.8       203.4       1,586.0       162.2       490.8       1,076.9       171.2       2,370.6       1,210.3       638.2       560.1       94.9     $ 8,959.4  
                                                                                                         
Total assets at:
                                                                                                        
December 31, 2011
   $ 547.1       311.8       1,884.8       475.4       870.6       1,937.0       207.5       4,930.6       1,922.6       647.4       2,610.8       163.2     $ 16,508.8  
                                                                                                         
Capital expenditures for three months ended June 30, 2011
   $ 26.2       7.9       65.2       15.3       44.3       92.9       3.4       92.1       29.0       19.0       13.4       6.9     $ 415.6  
                                                                                                         
Capital expenditures for six months ended June 30, 2011
   $ 48.3       16.4       101.9       24.0       85.4       102.4       6.5       176.3       46.2       32.3       22.0       9.8     $ 671.5  
                                                                                                         

(a) Non-operating segments include development properties.
(b) Includes corporate, Cerro Casale, shutdown and other non-operating assets (including Lobo-Marte and White Gold).
(c) As of December 31, 2011, Dvoinoye was reclassified into the Kupol segment. The comparative figures have been reclassified to conform to the 2012 segment presentation.
(d) Segmented capital expenditures are presented on an accrual basis. Additions to property, plant and equipment in the Interim Condensed Consolidated Statement of Cash Flows are presented on a cash basis.
(e) On June 28, 2012, the Company disposed of its interest in Crixás . See Note 4.

 
 
 

15.
COMMITMENTS AND CONTINGENCIES

 
i.
Commitments

Operating leases
 
The Company has a number of operating lease agreements involving office space and equipment. The operating leases for equipment provide that the Company may, after the initial lease term, renew the lease for successive yearly periods or may purchase the equipment at its fair market value. The operating leases for certain office facilities contain escalation clauses for increases in operating costs and property taxes. A majority of these leases are cancelable and are renewable on a yearly basis.

 
ii.
Contingencies

General
 
Estimated losses from contingencies are accrued by a charge to earnings when information available prior to the issuance of the financial statements indicates that it is likely that a future event will confirm that an asset has been impaired or a liability incurred at the date of the financial statements and the amount of the loss can be reasonably estimated.
 
Cerro Casale contingency
 
The Company was obligated to pay $40 million to Barrick when a production decision is made relating to the Cerro Casale project. During the first quarter of 2010, this contingent liability was reduced to $20 million in accordance with the agreement with Barrick under which the Company sold one-half of its 50% interest in the Cerro Casale project.

Other legal matters
 
The Company is from time to time involved in legal proceedings, arising in the ordinary course of its business. Typically, the amount of ultimate liability with respect to these actions will not, in the opinion of management, materially affect Kinross' financial position, results of operations or cash flows.
 
A putative securities class action complaint was filed on February 16, 2012 (the “U.S. Complaint”), entitled Bo Young Cha v. Kinross Gold Corporation et al., in the United States District Court for the Southern District of New York (the “Court”).  The U.S. Complaint named as defendants the Company, Tye Burt, former President and CEO, Paul Barry, Executive Vice President and Chief Financial Officer, Glen Masterman, Senior Vice President, Exploration and Kenneth Thomas, former Senior Vice President, Projects. On May 31, 2012, the Court selected the City of Austin Police Retirement System (“City of Austin”) to be lead plaintiff. Pursuant to an order of the Court, City of Austin filed an amended Complaint on July 23, 2012 (the “Amended U.S. Complaint”).  The Amended U.S. Complaint alleges among other things, that, between August 2, 2010 and January 17, 2012, the Defendants inflated Kinross’ share price by knowingly or recklessly making material misrepresentations concerning (i) the extent and quality of the due diligence Kinross performed prior to its acquisition of Red Back and (ii) Kinross’ schedule for developing the Tasiast mine.  Defendants are scheduled to file a motion to dismiss the Amended U.S. Complaint on or before September 7, 2012.  Defendants intend to vigorously defend against the Amended U.S. Complaint and believe it is without merit.
 
A notice of action in a proposed class proceeding under Ontario’s Class Proceedings Act, 1992, was filed in the Ontario Superior Court of Justice (the “Ontario Court”) on March 12, 2012, entitled Trustees of the Musicians’ Pension Fund of Canada v. Kinross Gold Corporation et al. (the “ First Ontario Action”). A statement of claim in the First Ontario Action was subsequently served on April 11, 2012. The Ontario Action named as defendants the Company, Tye Burt, former President and CEO, Paul Barry, Executive Vice President and Chief Financial Officer, Glen Masterman, Senior Vice President, Exploration, and Kenneth Thomas, former Senior Vice President, Projects. The First Ontario Action alleges, among other things, that Kinross made a number of misrepresentations relating to the quantity and quality of gold ore at the Tasiast mine and the costs of operating the mine, and that Kinross and the individual defendants knew that such misrepresentations were false or misleading when made. The plaintiff is seeking certification of the action as a class proceeding and leave to proceed under the statutory civil liability provisions of Ontario’s Securities Act. The plaintiff is also seeking various relief, including damages in the amount of CDN$4 billion and costs of the action. Kinross intends to vigorously defend against the First Ontario Action and believes it is without merit.
 
A notice of action in a second proposed class proceeding was filed in the Ontario Court on March 16, 2012 and a corresponding statement of claim was served with the notice of action on April 17, 2012 entitled Earl Downey and John Doe I v. Kinross Gold Corporation et al. (the “Second Ontario Action”). The Second Ontario Action names the same defendants as the First Ontario Action and, in addition, names Tasiast Mauritanie Limited S.A. (“TMLSA”), an indirect subsidiary of Kinross that is incorporated and headquartered in Mauritania. TMLSA disputes that it was validly served with the claim in Ontario and reserves its right to contest the jurisdiction of the Ontario Court. The allegations in the Second Ontario Action are similar to those advanced in the First Ontario Action. Various forms of relief are sought, including damages in the amount of CDN$3.5 billion and costs of the action. Subsequent to the service of the statement of claim in the Second Ontario action, it came to Kinross’ attention that the same law firm that acts for the plaintiff in the Second Ontario Action had filed statements of claim making virtually identical allegations against the same defendants on behalf of the same proposed class with the Supreme Court of British Columbia and the Court of Queen’s Bench of Alberta (the “Parallel British Columbia and Alberta Actions”).  The firms representing the plaintiffs in the First Ontario Action and the Second Ontario Action reached an agreement on carriage whereby the First Ontario Action will proceed and the Second Ontario Action and the Parallel British Columbia and Alberta Actions will be discontinued. This agreement was disclosed to the Ontario Court on July 16, 2012.
 
Income taxes
 
The Company operates in numerous countries around the world and accordingly is subject to, and pays, annual income taxes under the various regimes in countries in which it operates.  These tax regimes are determined under general corporate income tax laws of the country.  The Company has historically filed, and continues to file, all required income tax returns and to pay the taxes reasonably determined to be due.  The tax rules and regulations in many countries are complex and subject to interpretation.  From time to time the Company will undergo a review of its historic tax returns and in connection with such reviews disputes can arise with the taxing authorities over the Company’s interpretation of the country’s income tax rules.
 
 
 
 

16.
CONSOLIDATING FINANCIAL STATEMENTS

The obligations of the Company under the senior notes are fully and unconditionally guaranteed by the following wholly-owned subsidiaries of the Company (the “guarantor subsidiaries”):  Kinross Gold U.S.A., Inc., Round Mountain Gold Corporation, Kinross Brasil Mineração S.A., Aurelian Resources Inc., BGO (Bermuda) Ltd., Crown Resources Corporation, Fairbanks Gold Mining, Inc., Melba Creek Mining, Inc., Compania Minera Mantos de Oro, Compania Minera Maricunga, Red Back Mining Inc., and Red Back Mining Mauritania No. 2 Ltd.

The following tables contain separate financial information related to the guarantor subsidiaries as set out in the consolidating balance sheets as at June 30, 2012 and December 31, 2011 and the consolidating statements of operations, statements of comprehensive income and statements of cash flows for the six months ended June 30, 2012 and 2011. For purposes of this information, the financial statements of Kinross Gold Corporation and of the guarantor subsidiaries reflect investments in subsidiary companies on an equity accounting basis.
 
 
 
 

Consolidating balance sheet as at June 30, 2012

   
Guarantors
    
Non-guarantors
    
Eliminations
    
Consolidated
  
   
Kinross Gold Corp.
    
Guarantor Subsidiaries
    
Guarantor Adjustments
    
Total
Guarantors
    
 
              
Assets
                                          
Current assets
                                          
Cash and cash equivalents
   $ 504.6     $ 270.0     $ -     $ 774.6     $ 565.7     $ -     $ 1,340.3  
Restricted cash
     15.5       3.0       -       18.5       36.3       -       54.8  
Short-term investments
     -       -       -       -       -       -       -  
Accounts receivable and other assets
     7.0       196.3       -       203.3       180.2       -       383.5  
Intercompany receivables
     435.7       2,295.0       (567.0 )     2,163.7       4,131.9       (6,295.6 )     -  
Inventories
     -       401.4       -       401.4       614.0       -       1,015.4  
Unrealized fair value of derivative assets
     0.5       1.7       -       2.2       -       -       2.2  
      963.3       3,167.4       (567.0 )     3,563.7       5,528.1       (6,295.6 )     2,796.2  
Non-current assets
                                                        
Property, plant and equipment
     15.6       3,242.5       -       3,258.1       6,380.1       -       9,638.2  
Goodwill
     -       424.5       -       424.5       2,957.8       -       3,382.3  
Long-term investments
     46.2       1.2       -       47.4       13.1       -       60.5  
Investments in associates
     -       -       -       -       511.1       -       511.1  
Intercompany investments
     12,583.3       5,099.9       (8,787.6 )     8,895.6       7,068.7       (15,964.3 )     -  
Unrealized fair value of derivative assets
     0.6       3.4       -       4.0       -       -       4.0  
Deferred charges and other long-term assets
     5.2       169.6       -       174.8       271.8       -       446.6  
Long-term intercompany receivables
     1,156.7       744.1       (1,212.7 )     688.1       1,190.9       (1,879.0 )     -  
Deferred tax assets
     -       36.8       -       36.8       (1.3 )     -       35.5  
Total assets
   $ 14,770.9     $ 12,889.4     $ (10,567.3 )   $ 17,093.0     $ 23,920.3     $ (24,138.9 )   $ 16,874.4  
                                                         
Liabilities
                                                        
Current liabilities
                                                        
Accounts payable and accrued liabilities
   $ 60.9     $ 250.0     $ -     $ 310.9     $ 285.1     $ -     $ 596.0  
Intercompany payables
     256.9       1,764.9       (711.1 )     1,310.7       4,977.2       (6,287.9 )     -  
Current tax payable
     2.8       44.5       -       47.3       94.7       -       142.0  
Current portion of long-term debt
     436.5       9.4       -       445.9       30.0       -       475.9  
Current portion of provisions
     -       26.1       -       26.1       9.2       -       35.3  
Current portion of unrealized fair value of derivative liabilities
     9.4       42.1       -       51.5       -       -       51.5  
      766.5       2,137.0       (711.1 )     2,192.4       5,396.2       (6,287.9 )     1,300.7  
Non-current liabilities
                                                        
Long-term debt
     982.5       -       -       982.5       165.2       -       1,147.7  
Provisions
     13.8       423.5       -       437.3       155.6       -       592.9  
Unrealized fair value of derivative liabilities
     0.9       27.0       -       27.9       -       -       27.9  
Other long-term liabilities
     1.3       80.0       -       81.3       49.0       -       130.3  
Long-term intercompany payables
     363.5       1,318.7       (1,068.6 )     613.6       1,273.1       (1,886.7 )     -  
Deferred tax liabilities
     -       115.6       -       115.6       845.2       -       960.8  
Total liabilities
     2,128.5       4,101.8       (1,779.7 )     4,450.6       7,884.3       (8,174.6 )     4,160.3  
                                                         
Equity
                                                        
Common shareholders' equity
                                                        
Common share capital and common share purchase warrants
   $ 14,680.6     $ 3,299.3     $ (3,299.3 )   $ 14,680.6     $ 17,610.8     $ (17,610.8 )   $ 14,680.6  
    Contributed surplus
     79.8       82.8       (82.8 )     79.8       1,298.5       (1,298.5 )     79.8  
Retained earnings (accumulated deficit)
     (2,081.7 )     5,448.1       (5,448.1 )     (2,081.7 )     (2,939.7 )     2,939.7       (2,081.7 )
Accumulated other comprehensive loss
     (36.3 )     (42.6 )     42.6       (36.3 )     (5.3 )     5.3       (36.3 )
Total common shareholders' equity
     12,642.4       8,787.6       (8,787.6 )     12,642.4       15,964.3       (15,964.3 )     12,642.4  
Non-controlling interest
     -       -       -       -       71.7       -       71.7  
Total equity
     12,642.4       8,787.6       (8,787.6 )     12,642.4       16,036.0       (15,964.3 )     12,714.1  
                                                         
Total liabilities and equity
   $ 14,770.9     $ 12,889.4     $ (10,567.3 )   $ 17,093.0     $ 23,920.3     $ (24,138.9 )   $ 16,874.4  
                                                         

 
 
 

Consolidating balance sheet as at December 31, 2011

   
Guarantors
    
Non-guarantors
    
Eliminations
    
Consolidated
  
   
Kinross Gold Corp.
    
Guarantor Subsidiaries
    
Guarantor Adjustments
     Total
Guarantors
    
 
              
Assets
                                          
Current assets
                                          
Cash and cash equivalents
   $ 1,062.7     $ 232.0     $ -     $ 1,294.7     $ 471.3     $ -     $ 1,766.0  
Restricted cash
     15.5       4.2       -       19.7       42.4       -       62.1  
Short-term investments
     -       -       -       -       1.3       -       1.3  
Accounts receivable and other assets
     4.6       148.8       -       153.4       156.0       -       309.4  
Intercompany receivables
     430.5       2,392.6       (893.4 )     1,929.7       4,045.2       (5,974.9 )     -  
Inventories
     -       368.2       -       368.2       608.0       -       976.2  
Unrealized fair value of derivative assets
     0.2       2.6       -       2.8       -       -       2.8  
      1,513.5       3,148.4       (893.4 )     3,768.5       5,324.2       (5,974.9 )     3,117.8  
Non-current assets
                                                        
Property, plant and equipment
     15.4       2,953.2       -       2,968.6       5,990.8       -       8,959.4  
Goodwill
     -       424.5       -       424.5       2,995.8       -       3,420.3  
Long-term investments
     56.8       1.4       -       58.2       21.2       -       79.4  
Investments in associates
     -       -       -       -       502.5       -       502.5  
Intercompany investments
     12,283.7       5,168.9       (8,538.0 )     8,914.6       6,992.2       (15,906.8 )     -  
Unrealized fair value of derivative assets
     -       1.1       -       1.1       -       -       1.1  
Deferred charges and other long-term assets
     3.6       166.6       -       170.2       236.2       -       406.4  
Long-term intercompany receivables
     1,391.0       1,330.2       (1,341.1 )     1,380.1       1,972.0       (3,352.1 )     -  
Deferred tax assets
     -       24.3       -       24.3       (2.4 )     -       21.9  
Total assets
   $ 15,264.0     $ 13,218.6     $ (10,772.5 )   $ 17,710.1     $ 24,032.5     $ (25,233.8 )   $ 16,508.8  
                                                         
Liabilities
                                                        
Current liabilities
                                                        
Accounts payable and accrued liabilities
   $ 74.3     $ 218.0     $ -     $ 292.3     $ 283.0     $ -     $ 575.3  
Intercompany payables
     334.0       2,059.8       (981.4 )     1,412.4       4,550.6       (5,963.0 )     -  
Current tax payable
     -       44.4       -       44.4       38.5       -       82.9  
Current portion of long-term debt
     (0.3 )     32.2       -       31.9       0.8       -       32.7  
Current portion of provisions
     -       28.0       -       28.0       10.1       -       38.1  
Current portion of unrealized fair value of derivative liabilities
     21.3       45.4       -       66.7       -       -       66.7  
      429.3       2,427.8       (981.4 )     1,875.7       4,883.0       (5,963.0 )     795.7  
Non-current liabilities
                                                        
Long-term debt
     1,402.1       3.2       -       1,405.3       195.1       -       1,600.4  
Provisions
     13.2       416.9       -       430.1       167.0       -       597.1  
Unrealized fair value of derivative liabilities
     3.0       29.7       -       32.7       -       -       32.7  
Other long-term liabilities
     1.2       79.0       -       80.2       52.9       -       133.1  
Long-term intercompany payables
     1,024.8       1,637.0       (1,253.1 )     1,408.7       1,955.3       (3,364.0 )     -  
Deferred tax liabilities
     -       87.0       -       87.0       792.1       -       879.1  
Total liabilities
     2,873.6       4,680.6       (2,234.5 )     5,319.7       8,045.4       (9,327.0 )     4,038.1  
                                                         
Equity
                                                        
Common shareholders' equity
                                                        
Common share capital and common share purchase warrants
   $ 14,656.6     $ 3,246.8     $ (3,246.8 )   $ 14,656.6     $ 17,617.2     $ (17,617.2 )   $ 14,656.6  
Contributed surplus
     81.4       82.8       (82.8 )     81.4       1,137.7       (1,137.7 )     81.4  
Retained earnings (accumulated deficit)
     (2,249.9 )     5,254.1       (5,254.1 )     (2,249.9 )     (2,792.3 )     2,792.3       (2,249.9 )
Accumulated other comprehensive loss
     (97.7 )     (45.7 )     45.7       (97.7 )     (55.8 )     55.8       (97.7 )
Total common shareholders' equity
     12,390.4       8,538.0       (8,538.0 )     12,390.4       15,906.8       (15,906.8 )     12,390.4  
Non-controlling interest
     -       -       -       -       80.3       -       80.3  
Total equity
     12,390.4       8,538.0       (8,538.0 )     12,390.4       15,987.1       (15,906.8 )     12,470.7  
                                                         
Total liabilities and equity
   $ 15,264.0     $ 13,218.6     $ (10,772.5 )   $ 17,710.1     $ 24,032.5     $ (25,233.8 )   $ 16,508.8  
                                                         

 
 
 

Consolidating statement of operations for the six months ended June 30, 2012

                           
Non-guarantors
    
Eliminations
    
Consolidated
  
   
Kinross Gold Corp.
    
Guarantor Subsidiaries
    
Guarantor Adjustments
     Total
Guarantors
    
 
              
Revenue
                                          
Metal sales
   $ -     $ 1,086.7     $ -     $ 1,086.7     $ 928.1     $ -     $ 2,014.8  
                                                         
Cost of sales
                                                        
Production cost of sales
     -       556.3       -       556.3       361.2       -       917.5  
Depreciation, depletion and amortization
     3.1       112.3       -       115.4       184.3       -       299.7  
Total cost of sales
     3.1       668.6       -       671.7       545.5       -       1,217.2  
Gross profit (loss)
     (3.1 )     418.1       -       415.0       382.6       -       797.6  
Other operating costs
     2.9       0.5       -       3.4       18.9       -       22.3  
Exploration and business development
     19.7       18.9       -       38.6       91.3       -       129.9  
General and administrative
     56.9       11.1       -       68.0       15.7       -       83.7  
Operating earnings (loss)
     (82.6 )     387.6       -       305.0       256.7       -       561.7  
Other income (expense) - net
     4.6       (11.3 )     -       (6.7 )     663.0       (672.5 )     (16.2 )
Equity in gains (losses) of associates and intercompany investments
     287.7       (37.1 )     (193.8 )     56.8       (2.9 )     (56.8 )     (2.9 )
Finance income
     14.3       2.3       (13.3 )     3.3       6.8       (8.0 )     2.1  
Finance expense
     (5.7 )     (22.3 )     13.3       (14.7 )     (12.1 )     8.0       (18.8 )
Earnings before taxes
     218.3       319.2       (193.8 )     343.7       911.5       (729.3 )     525.9  
Income tax expense - net
     (4.4 )     (125.4 )     -       (129.8 )     (189.3 )     -       (319.1 )
Earnings from continuing operations after tax
     213.9       193.8       (193.8 )     213.9       722.2       (729.3 )     206.8  
Earnings from discontinued operations after tax
     45.4       -       -       45.4       48.8       (50.3 )     43.9  
Net earnings
   $ 259.3     $ 193.8     $ (193.8 )   $ 259.3     $ 771.0     $ (779.6 )   $ 250.7  
Net earnings from continuing operations attributed to:
                                                        
Non-controlling interest
   $ -     $ -     $ -     $ -     $ (8.6 )   $ -     $ (8.6 )
Common shareholders
   $ 213.9     $ 193.8     $ (193.8 )   $ 213.9     $ 730.8     $ (729.3 )   $ 215.4  
Net earnings attributed to:
                                                        
Non-controlling interest
   $ -     $ -     $ -     $ -     $ (8.6 )   $ -     $ (8.6 )
Common shareholders
   $ 259.3     $ 193.8     $ (193.8 )   $ 259.3     $ 779.6     $ (779.6 )   $ 259.3  
                                                         

 
 
 

Consolidating statement of operations for the six months ended June 30, 2011

                           
Non-guarantors
    
Eliminations
    
Consolidated
  
   
Kinross Gold Corp.
    
Guarantor Subsidiaries
    
Guarantor Adjustments
     Total
Guarantors
    
 
              
Revenue
                                          
Metal sales
   $ -     $ 918.5     $ -     $ 918.5     $ 963.2     $ -     $ 1,881.7  
                                                         
Cost of sales
                                                        
Production cost of sales
     -       419.9       -       419.9       340.6       -       760.5  
Depreciation, depletion and amortization
     2.4       123.0       -       125.4       171.6       -       297.0  
Total cost of sales
     2.4       542.9       -       545.3       512.2       -       1,057.5  
Gross profit (loss)
     (2.4 )     375.6       -       373.2       451.0       -       824.2  
Other operating costs
     7.6       2.8       -       10.4       2.6       -       13.0  
Exploration and business development
     14.2       12.5       -       26.7       23.2       -       49.9  
General and administrative
     64.8       14.2       -       79.0       4.4       -       83.4  
Operating earnings (loss)
     (89.0 )     346.1       -       257.1       420.8       -       677.9  
Other income (expense) - net
     127.8       (17.0 )     -       110.8       5.5       (11.2 )     105.1  
Equity in gains (losses) of associates and intercompany investments
     468.2       151.8       (376.4 )     243.6       -       (243.6 )     -  
Finance income
     3.8       2.1       (0.1 )     5.8       10.8       (12.9 )     3.7  
Finance expense
     (20.6 )     (12.2 )     0.1       (32.7 )     (12.5 )     12.9       (32.3 )
Earnings before taxes
     490.2       470.8       (376.4 )     584.6       424.6       (254.8 )     754.4  
Income tax expense - net
     (1.1 )     (94.4 )     -       (95.5 )     (113.6 )     -       (209.1 )
Earnings from continuing operations after tax
     489.1       376.4       (376.4 )     489.1       311.0       (254.8 )     545.3  
Earnings from discontinued operations after tax
     8.4       -       -       8.4       8.4       (9.8 )     7.0  
Net earnings
   $ 497.5     $ 376.4     $ (376.4 )   $ 497.5     $ 319.4     $ (264.6 )   $ 552.3  
Net earnings from continuing operations attributed to:
                                                        
Non-controlling interest
   $ -     $ -     $ -     $ -     $ 54.8     $ -     $ 54.8  
Common shareholders
   $ 489.1     $ 376.4     $ (376.4 )   $ 489.1     $ 256.2     $ (254.8 )   $ 490.5  
Net earnings attributed to:
                                                        
Non-controlling interest
   $ -     $ -     $ -     $ -     $ 54.8     $ -     $ 54.8  
Common shareholders
   $ 497.5     $ 376.4     $ (376.4 )   $ 497.5     $ 264.6     $ (264.6 )   $ 497.5  
                                                         

 
 
 

Consolidating statement of comprehensive income for the six months ended June 30, 2012

   
Guarantors
    
Non-guarantors
    
Eliminations
    
Consolidated
  
   
Kinross Gold Corp.
    
Guarantor Subsidiaries
    
Guarantor Adjustments
     Total
Guarantors
    
 
              
                                           
Net earnings
   $ 259.3     $ 193.8     $ (193.8 )   $ 259.3     $ 771.0     $ (779.6 )   $ 250.7  
                                                         
Other comprehensive income (loss), net of tax:
                                                  
Change in fair value of investments (a)
     (9.0 )     1.2       -       (7.8 )     (6.6 )     -       (14.4 )
Reclassification to earnings for impairment charges
     11.7       -       -       11.7       8.5       -       20.2  
Accumulated other comprehensive income related to investments sold (b)
     (0.1 )     -       -       (0.1 )     -       -       (0.1 )
Changes in fair value of derivative financial instruments designated as cash flow hedges (c)
     0.1       0.6       -       0.7       -       -       0.7  
Accumulated other comprehensive income related to derivatives settled (d)
     0.4       5.9       -       6.3       48.7       -       55.0  
      3.1       7.7       -       10.8       50.6       -       61.4  
Equity in other comprehensive income of associates and intercompany investments
     58.3       (4.6 )     (3.1 )     50.6       -       (50.6 )     -  
Total comprehensive income
   $ 320.7     $ 196.9     $ (196.9 )   $ 320.7     $ 821.6     $ (830.2 )   $ 312.1  
                                                         
Comprehensive income from continuing operations
   $ 276.8     $ 196.9     $ (196.9 )   $ 276.8     $ 777.7     $ (786.3 )   $ 268.2  
Comprehensive income from discontinued operations
     43.9       -       -       43.9       43.9       (43.9 )     43.9  
Comprehensive income
   $ 320.7     $ 196.9     $ (196.9 )   $ 320.7     $ 821.6     $ (830.2 )   $ 312.1  
Attributed to non-controlling interest
   $ -     $ -     $ -     $ -     $ (8.6 )   $ -     $ (8.6 )
Attributed to common shareholders
   $ 320.7     $ 196.9     $ (196.9 )   $ 320.7     $ 830.2     $ (830.2 )   $ 320.7  
                                                         
(a) Net of tax of
     (0.9 )     -       -       (0.9 )     (1.3 )     -       (2.2 )
(b) Net of tax of
     -       -       -       -       -       -       -  
(c) Net of tax of
     -       (2.7 )     -       (2.7 )     -       -       (2.7 )
(d) Net of tax of
     -       3.6       -       3.6       -       -       3.6  

 
 
 

Consolidating statement of comprehensive income for the six months ended June 30, 2011

   
Guarantors
    
Non-guarantors
    
Eliminations
    
Consolidated
  
   
Kinross Gold Corp.
    
Guarantor Subsidiaries
    
Guarantor Adjustments
     Total
Guarantors
    
 
              
                                           
Net earnings
   $ 497.5     $ 376.4     $ (376.4 )   $ 497.5     $ 319.4     $ (264.6 )   $ 552.3  
                                                         
Other comprehensive income (loss), net of tax:
                                                  
Change in fair value of investments (a)
     8.2       (0.7 )     -       7.5       (16.7 )     -       (9.2 )
Reclassification to earnings for impairment charges
     -       -       -       -       -       -       -  
Accumulated other comprehensive income related to investments sold (b)
     (30.0 )     -       -       (30.0 )     -       -       (30.0 )
Changes in fair value of derivative financial instruments designated as cash flow hedges (c)
     4.2       36.0       -       40.2       (10.2 )     -       30.0  
Accumulated other comprehensive income related to derivatives settled (d)
     (3.6 )     (8.6 )     -       (12.2 )     116.7       -       104.5  
      (21.2 )     26.7       -       5.5       89.8       -       95.3  
Equity in other comprehensive income of associates and intercompany investments
     116.5       (5.3 )     (21.4 )     89.8       -       (89.8 )     -  
Total comprehensive income
   $ 592.8     $ 397.8     $ (397.8 )   $ 592.8     $ 409.2     $ (354.4 )   $ 647.6  
                                                         
Comprehensive income from continuing operations
   $ 585.8     $ 397.8     $ (397.8 )   $ 585.8     $ 402.2     $ (347.4 )   $ 640.6  
Comprehensive income from discontinued operations
     7.0       -       -       7.0       7.0       (7.0 )     7.0  
Comprehensive income
   $ 592.8     $ 397.8     $ (397.8 )   $ 592.8     $ 409.2     $ (354.4 )   $ 647.6  
Attributed to non-controlling interest
   $ -     $ -     $ -     $ -     $ 54.8     $ -     $ 54.8  
Attributed to common shareholders
   $ 592.8     $ 397.8     $ (397.8 )   $ 592.8     $ 354.5     $ (354.4 )   $ 592.8  
                                                         
(a) Net of tax of
     1.3       -       -       1.3       (1.5 )     -       (0.2 )
(b) Net of tax of
     -       -       -       -       -       -       -  
(c) Net of tax of
     -       16.3       -       16.3       -       -       16.3  
(d) Net of tax of
     -       (6.1 )     -       (6.1 )     -       -       (6.1 )

 
 
 

Consolidating statement of cash flows for the six months ended June 30, 2012

   
Guarantors
    
Non-guarantors
    
Eliminations
    
Consolidated
  
   
Kinross Gold Corp.
    
Guarantor Subsidiaries
    
Guarantor Adjustments
     Total
Guarantors
    
 
              
Net inflow (outflow) of cash related to the following activities:
                          
Operating:
                                          
Net earnings from continuing operations
   $ 213.9     $ 193.8     $ (193.8 )   $ 213.9     $ 722.2     $ (729.3 )   $ 206.8  
 Adjustments to reconcile net earnings to net cash provided from (used in) operating activities:    
 
                          
Depreciation, depletion and amortization
     3.1       112.3       -       115.4       184.3       -       299.7  
(Gains) losses on acquisition/disposition of assets and
  investments - net
     (0.1 )     (0.2 )     -       (0.3 )     0.8       -       0.5  
Equity in (gains) losses of associates and intercompany investments
     (287.7 )     37.1       193.8       (56.8 )     2.9       56.8       2.9  
Non-hedge derivative (gains) losses - net
     (13.5 )     -       -       (13.5 )     -       -       (13.5 )
Settlement of derivative instruments
     -       -       -       -       48.7       -       48.7  
Share-based compensation expense
     18.9       -       -       18.9       -       -       18.9  
Accretion expense
     0.5       6.4       -       6.9       3.8       -       10.7  
Deferred tax (recovery) expense
     0.9       15.3       -       16.2       67.3       -       83.5  
Foreign exchange (gains) losses and other
     13.5       (10.5 )     -       3.0       (21.3 )     -       (18.3 )
Changes in operating assets and liabilities:
                                                        
Accounts receivable and other assets
     (2.9 )     (48.2 )     -       (51.1 )     (34.3 )     -       (85.4 )
Inventories
     -       (28.0 )     -       (28.0 )     (20.6 )     -       (48.6 )
Accounts payable and accrued liabilities, excluding interest and taxes
     (17.5 )     101.4       -       83.9       56.2       -       140.1  
Cash flow provided from (used in) operating activities
     (70.9 )     379.4       -       308.5       1,010.0       (672.5 )     646.0  
Income taxes paid
     (0.8 )     (97.0 )     -       (97.8 )     (94.3 )     -       (192.1 )
Net cash flow of continuing operations provided from (used in) operating activities
     (71.7 )     282.4       -       210.7       915.7       (672.5 )     453.9  
Net cash flow of discontinued operations provided from operating activities
     -       -       -       -       14.8       -       14.8  
Investing:
                                                        
Additions to property, plant and equipment
     (4.4 )     (360.6 )     -       (365.0 )     (596.4 )     -       (961.4 )
Net proceeds from the sale of long-term investments and other assets
     0.2       -       -       0.2       -       -       0.2  
Additions to long-term investments and other assets
     (1.2 )     -       -       (1.2 )     (11.5 )     -       (12.7 )
Net proceeds from the sale of property, plant and equipment
     -       0.2       -       0.2       -       -       0.2  
Disposals (additions) of short-term investments
     -       -       -       -       1.3       -       1.3  
Increase (decrease) in restricted cash
     -       1.3       -       1.3       -       -       1.3  
Interest received
     0.6       0.4       -       1.0       1.1       -       2.1  
Other
     -       (0.3 )     -       (0.3 )     0.4       -       0.1  
Net cash flow of continuing operations used in investing activities
     (4.8 )     (359.0 )     -       (363.8 )     (605.1 )     -       (968.9 )
Net cash flow of discontinued operations provided from (used in) investing activities
     -       -       -       -       198.9       -       198.9  
Financing:
                                                        
Issuance of common shares on exercise of options and warrants
     3.5       -       -       3.5       -       -       3.5  
Acquisition of CMGC 25% non-controlling interest
     -       -       -       -       -       -       -  
Proceeds from issuance of debt
     -       296.3       -       296.3       -       -       296.3  
Repayment of debt
     -       (322.4 )     -       (322.4 )     (0.1 )     -       (322.5 )
Interest paid
     (1.4 )     (0.4 )     -       (1.8 )     (3.0 )     -       (4.8 )
Dividends received from / (paid to) common shareholders
     122.7       26.0       -       148.7       (912.3 )     672.5       (91.1 )
Settlement of derivative instruments
     -       -       -       -       -       -       -  
Intercompany advances and other
     (606.4 )     115.1       -       (491.3 )     490.5       -       (0.8 )
Net cash flow of continuing operations provided from (used in) financing activities
     (481.6 )     114.6       -       (367.0 )     (424.9 )     672.5       (119.4 )
Net cash flow of discontinued operations used in financing activities
     -       -       -       -       (0.6 )     -       (0.6 )
                                                         
Effect of exchange rate changes on cash and cash equivalents of continuing operations
     -       -       -       -       (4.4 )     -       (4.4 )
Increase (decrease) in cash and cash equivalents
     (558.1 )     38.0       -       (520.1 )     94.4       -       (425.7 )
Cash and cash equivalents, beginning of period
     1,062.7       232.0       -       1,294.7       471.3       -       1,766.0  
Cash and cash equivalents, end of period
   $ 504.6     $ 270.0     $ -     $ 774.6     $ 565.7     $ -     $ 1,340.3  
                                                         

 
 
 

Consolidating statement of cash flows for the six months ended June 30, 2011

   
Guarantors
    
Non-guarantors
    
Eliminations
    
Consolidated
  
   
Kinross Gold Corp.
    
Guarantor Subsidiaries
    
Guarantor Adjustments
     Total
Guarantors
    
 
              
Net inflow (outflow) of cash related to the following activities:
                    
Operating:
                                          
Net earnings from continuing operations
   $ 489.1     $ 376.4     $ (376.4 )   $ 489.1     $ 311.0     $ (254.8 )   $ 545.3  
 Adjustments to reconcile net earnings to net cash provided from (used in) operating activities:    
 
                          
Depreciation, depletion and amortization
     2.4       123.0       -       125.4       171.6       -       297.0  
(Gains) losses on acquisition/disposition of assets and
investments - net
     (30.3 )     (1.3 )     -       (31.6 )     0.2       -       (31.4 )
Equity in (gains) losses of associates and intercompany
investments
     (468.2 )     (151.8 )     376.4       (243.6 )     -       243.6       -  
Non-hedge derivative (gains) losses - net
     (85.0 )     24.0       -       (61.0 )     12.9       -       (48.1 )
Settlement of derivative instruments
     -       -       -       -       -       -       -  
Share-based compensation expense
     18.4       -       -       18.4       -       -       18.4  
Accretion expense
     15.8       7.9       -       23.7       2.8       -       26.5  
Deferred tax (recovery) expense
     (1.3 )     1.5       -       0.2       (12.3 )     -       (12.1 )
Foreign exchange (gains) losses and other
     (4.2 )     14.5       -       10.3       (10.4 )     -       (0.1 )
Changes in operating assets and liabilities:
                                                        
Accounts receivable and other assets
     0.8       (49.0 )     -       (48.2 )     (119.7 )     -       (167.9 )
Inventories
     -       (34.0 )     -       (34.0 )     31.5       -       (2.5 )
Accounts payable and accrued liabilities, excluding
interest and taxes
     (6.3 )     78.2       -       71.9       173.1       -       245.0  
Cash flow provided from (used in) operating activities
     (68.8 )     389.4       -       320.6       560.7       (11.2 )     870.1  
Income taxes paid
     -       (86.7 )     -       (86.7 )     (96.2 )     -       (182.9 )
Net cash flow of continuing operations provided from (used in) operating activities
     (68.8 )     302.7       -       233.9       464.5       (11.2 )     687.2  
Net cash flow of discontinued operations provided from operating activities
     -       -       -       -       9.2       -       9.2  
Investing:
                                                        
Additions to property, plant and equipment
     (3.4 )     (277.3 )     -       (280.7 )     (381.0 )     -       (661.7 )
Net proceeds from the sale of long-term investments and other assets
     101.1       -       -       101.1       -       -       101.1  
Additions to long-term investments and other assets
     (9.9 )     (1.2 )     -       (11.1 )     (65.4 )     -       (76.5 )
Net proceeds from the sale of property, plant and
equipment
     -       0.7       -       0.7       0.1       -       0.8  
Disposals (additions) of short-term investments
     -       -       -       -       (1.3 )     -       (1.3 )
Increase (decrease) in restricted cash
     -       (3.8 )     -       (3.8 )     (0.1 )     -       (3.9 )
Interest received
     0.8       1.2       -       2.0       (0.1 )     -       1.9  
Other
     (0.3 )     -       -       (0.3 )     (2.7 )     -       (3.0 )
Net cash flow of continuing operations provided from (used in) investing activities
     88.3       (280.4 )     -       (192.1 )     (450.5 )     -       (642.6 )
Net cash flow of discontinued operations used in investing activities
     -       -       -       -       (16.7 )     -       (16.7 )
Financing:
                                                        
Issuance of common shares on exercise of options and
warrants
     14.9       -       -       14.9       -       -       14.9  
Acquisition of CMGC 25% non-controlling interest
     -       -       -       -       (335.4 )     -       (335.4 )
Proceeds from issuance of debt
     -       192.6       -       192.6       -       -       192.6  
Repayment of debt
     -       (215.5 )     -       (215.5 )     (0.1 )     -       (215.6 )
Interest paid
     (4.0 )     (1.0 )     -       (5.0 )     (0.1 )     -       (5.1 )
Dividends received from / (paid to) common shareholders
     (56.8 )     -       -       (56.8 )     (11.2 )     11.2       (56.8 )
Settlement of derivative instruments
     39.9       -       -       39.9       (59.6 )     -       (19.7 )
Intercompany advances and other
     (6.4 )     (481.8 )     -       (488.2 )     482.5       -       (5.7 )
Net cash flow of continuing operations provided from (used in) financing activities
     (12.4 )     (505.7 )     -       (518.1 )     76.1       11.2       (430.8 )
Net cash flow of discontinued operations used in financing activities
     -       -       -       -       (1.4 )     -       (1.4 )
                                                         
Effect of exchange rate changes on cash and cash equivalents of continuing operations
     -       -       -       -       8.8       -       8.8  
Increase (decrease) in cash and cash equivalents
     7.1       (483.4 )     -       (476.3 )     90.0       -       (386.3 )
Cash and cash equivalents, beginning of period
     151.9       1,052.5       -       1,204.4       262.2       -       1,466.6  
Cash and cash equivalents, end of period
   $ 159.0     $ 569.1     $ -     $ 728.1     $ 352.2     $ -     $ 1,080.3