Kinross delivers Dvoinoye on budget, amidst job cuts

VANCOUVER — News is mixed for shareholders of Toronto-based producer Kinross Gold (TSX: K; NYSE: KGC), as the company pushes expansion plans while grappling with cost-cutting measures prompted by asset writedowns and weaker gold prices.

On Oct. 9 Kinross announced commercial production at its Dvoinoye satellite gold deposit in Russia’s Chukotka region, which will provide mill feed to the company’s wholly owned Kupol mine, 100 km north. Kinross upgraded Kupol’s processing circuit to 4,500 tonnes per day to accommodate 1,000 tonnes per day of Dvoinoye ore, which will be trucked in via an all-season road.

Kinross was able to deliver Dvoinoye on budget at a capital cost of US$360 million, as well as meet its production target. The development exemplifies  how many miners have shifted their focus to brownfield expansion and satellite deposits that carry less risk and lower development costs.

Dvoinoye is expected to produce between 235,000 and 300,000 equivalent oz. gold annually during its first three years of production, which will supplement production from Kupol’s underground operations.

Kinross estimates that the cost of sales for its combined Russian operations will be between US$545 and US$600 per gold equivalent oz. over the next four years. Dvoinoye’s total production in 2013 is expected to be 25,000 equivalent oz. gold.

“Dvoinoye is the fourth mine Kinross has operated in Russia, which remains our lowest-cost jurisdiction and a core operating region,” Kinross CEO Paul Rollinson said in a release. “The new mine is a testament to our continued success in the region and our strong partnerships with local communities, the indigenous people of Chukotka, and the regional and federal governments.”

Rollinson and Chukotka Governor Roman Kopin were on-site to inaugurate Dvoinoye’s opening on Oct. 10, with Kopin congratulating the company on a project that “will create jobs and prosperity in our communities.”

Dvoinoye provides Kinross with high-grade ounces, including probable reserves totalling 2 million tonnes at 17.8 grams gold per tonne for 1.1 million contained oz.

Kupol holds 8 million proven and probable tonnes at 9.29 grams gold for 2.4 million contained oz. Kinross’ total reserves in Russia are pegged at 3.5 million oz. at 10.94 grams gold.

Elsewhere in its empire, Kinross is pursuing cost-cutting. On Oct. 10 the company said it is cutting 300 jobs from its mining operations in Mauritania and at a regional administrative office in Las Palmas, Spain. Kinross cited a steep drop in gold prices as the reason behind the cuts, which followed a company-wide cost review. The company did not indicate how the cuts would be split between its Spanish and West African departments.

In early August Kinross announced it had identified cost savings totalling US$180 million, and expected to cut more through the remainder of 2013. The company also delayed a decision on a mill expansion at its Tasiast gold mine in Mauritania, which has been a source of a wide variety of problems since its acquisition for US$7 billion in 2010.

Kinross reported cash and equivalents of US$1.1 billion to end the second quarter, after generating net earnings of US$120 million, or 10¢ per share. The company reported quarterly, non-cash impairment charges totalling US$2.3 billion based on falling gold prices.

Kinross shares have traded within a 52-week window of $4.74 and $10.44, and closed at $4.81 at press time. The company has 1.1 billion shares outstanding for a $5.5-billion market capitalization.