Kinross sheds some weight (July 03, 2006)

Kinross Gold (K-T, KGC-N) Continues to Clean Up Its Operations and Exit Some of Its Non-Core Assets.

It recently divested itself of two of its less desirable properties — one in Canada’s north and the other in Africa’s south.

On June 19, Kinross announced the sale of its dormant Lupin mine in Nunavut to Wolfden Resources (Wlf-V, Wfdnf-O) and the following day, Caledonia Mining (Cal-T, Calvf-O) announced that it had finalized the purchase of Kinross’ Blanket gold mine in Zimbabwe.

Catherine Gignac, an analyst with Toronto-based Wellington West, likens the moves to “housecleaning.”

“They’re not really valuable,” Gignac says of the assets. “The internal corporate thinking is likely, ‘Where are we going to focus?'”

With assets in such divergent countries as Canada, Brazil, Chile and Russia — several of which are joint-venture projects — Gignac says the company will be looking at how it can take greater control of its own destiny on the more desirable projects.

As for the divestments, the Blanket mine in Zimbabwe had already been written off due to the political climate in Zimbabwe. But by selling it, Kinross is likely freeing itself from any possible liabilities down the road.

However, Caledonia Mining — Blanket’s new owner — believes in the long-term potential of Zimbabwe’s greenstone gold deposits, and hopes that its ongoing discussions with the government will lead to a “pragmatic” resolution of fears that the government could expropriate foreign-owned mining operations.

The mine currently mills 600 tonnes of ore per day at an average grade of 4.1 grams per tonne and produces an average of 2,100 oz. gold per month.

If discussions with the government go well, a US$2.5-million project to complete a shaft would see milling throughput increase to 1,000 tonnes per day and gold production to over 40,000 oz. per year. The project could be completed by mid-2007.

The reserve estimate at Blanket is 3.2 million tonnes grading 4.24 grams gold per tonne for a total of about 440,000 oz.

Kinross will get US$1 million and 20 million shares in Caledonia for the project.

Caledonia says the acquisition is part of its plan to focus on southern Africa. The company’s prime exploration project is its Nama cobalt property in Zambia.

As for Wolfden’s acquisition of the out-of-operation Lupin gold mine, Wolfden president and chief executive Ewan Downie says the deal saves Kinross reclamation costs, while saving Wolfden the large infrastructure costs associated with building a new mill for two of its projects in the general vicinity.

“There’s savings both ways, so it’s a win-win situation,” Downie says.

The deal calls for Kinross to reimburse Wolfden $1.7 million for fuel during the next trucking season. Kinross will also give Wolfden a standby letter of credit for $3 million to be drawn on if demolition of the mill begins, pay $4 million for reclamation of the site if the mill is moved, or pay $1 million at the time of reclamation if the mill is put back into production.

Kinross will retain a 1% net smelter return royalty relating to any ore mined from Lupin and will be returned its $3 million in credit if the mine is not demolished.

Wolfden is considering using the mill at Lupin for processing ore from its Ulu and Izok sites also located in northern Nunavut.

But the company is also looking at whether it can mine more ore from Lupin itself. The mine was closed in February 2005, but Downie says with today’s higher gold price, the mine could be economic again.

Between 1982 and 2005, the Lupin mine produced more than 3 million oz. gold grading 9 grams per tonne.