Kinross sheds some weight (June 21, 2006)

Kinross Gold (K-T, KGC-N) continues on its path to clean-up operations and exit from some of its redundant assets.

This week it divested itself of two of its less desirable properties — one in Canada’s north and one in Africa’s south.

On June 19 it was announced that Kinross had sold its dormant Lupin mine in Nunavut to Wolfden Resources (WLF-T) and the following day, Caledonia Mining (CAL-T) announced that it had finalized the purchase of Kinross’ Blanket gold mine in Zimbabwe.

Katherine Gignac, an analyst with Toronto-based Wellington West, likens the moves to “house cleaning.”

“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 being joint ventures — 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, the purchaser of Blanket, Caledonia Mining (CAL-T) 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 to 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. of gold per month.

If discussions with the government go well enough, 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.

Blanket mine draws from a deposit with a reserve estimate of 3.2 million tonnes grading 4.24 grams gold per tonne for a total of roughly 440,000 oz.

Caledonia is paying Kinross US$1 million and 20 million Caledonia shares.

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.

A day before Caledonia issued its release, Wolfden Resources (WLF-T) announced that it was purchasing Kinross’ out-of-operation Lupin gold mine in Nunavut.

Wolfden’s president and chief executive Ewan Downie says, in its essence, the deal is about saving Kinross the reclamation costs on the mine, and saving Wolfden large infrastructure costs associated with building a new mill for two of its projects in the general vicinity.

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

The deal calls for Kinross to reimburse Wolfden $1.7 million for fuel during the next trucking season, give Wolfden a standby letter of credit for $3 million to be drawn from if demolition of the mill begins, pay $4 million for reclamation of the site if the mill is moved, or will 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 of 2005, but Downie says with today’s higher gold price, the mine could be economical again.

Between 1982 and 2005, the Lupin Mine produced more than 3 million oz of gold at an average grade of 9 grams per tonne.