Kinross tumbles on project delays

Kinross Gold (K-T, KGC-N) fell more than 20% after it said it is reviewing its three major advanced gold projects to improve economics, likely causing months of delay and a goodwill write down of the Tasiast gold project in Mauritania.

Along with Tasiast, Kinross will explore ways to reduce costs at Fruta del Norte in Ecuador and Lobo-Marte in Chile, saying all three projects are expected to require significant amounts of capital in the coming years. As a result, feasibility studies for all three are expected to be delayed. 

Kinross explains it would need six to nine months of analysis and planning to figure out the best processing mix for the Tasiast project. 

Along with that setback, it expects to lower the intangible value of the mine. 

The company took over the deposit after acquiring Red Back Mining in 2010. On Sept. 30, 2011, it reported the project’s book value at US$7.1 billion, of which US$4.6 billion was goodwill or intangible. 

But given current market conditions and growing capital and operating costs, Kinross says it will record a material non-cash goodwill charge for Tasiast as expected by the International Financial Reporting Standards. Kinross aims to provide more details on what that charge will be when it releases its year-end operating and financial results on Feb. 15. 

As part of the review, the company will explore different ways to process ore at Tasiast to reduce operating costs.

Armed with a better understanding of the project’s orebody, it suggests it may be more cost-efficient to mine the lower-grade material at Tasiast through heap-leaching in combination with carbon-in-leach milling. 

At Fruta del Norte, the company recently signed a non-binding agreement with the Ecuadorian government regarding the exploitation of the deposit in Zamora Chinchipe province. 

On Jan. 16, the company reported preliminary operating results for 2011 and its outlook for 2012. 

Kinross expects to have produced 2.6 million gold equivalent oz., at a cost of US$600 per oz. in 2011. Both figures fall within its previously stated guidance. 

For this year, the company is targeting production of between 2.6 million and 2.8 million gold equivalent oz. Production costs are anticipated to be slightly higher – between US$615 and US$715 per oz. – partially due to rising costs for raw materials and labour. 

For the year, the company has budgeted US$2.5 billion for capital expenditures at its projects, of which US$1.3 billion would be allocated to its growth projects, mainly the Tasiast deposit. 

On Jan. 17, Kinross lost $2.81 to close at $10.39 per share on 27.5 million shares traded. Its shares plunged 38% in 2011 to close the year at $11.63. On Jan. 19, it slid to a new yearly low of $10.08. It touched a 52-week high of $18.17 on Sept. 9, 2011.