Placer, Kinross join forces in Timmins camp

One of Ontario’s oldest mining districts is getting ready for a facelift.

Kinross Gold (K-T) and Placer Dome (PDG-T) have signed a letter of understanding to form a joint venture that would combine the Timmins gold mining operations of both companies. The deal, if approved, should translate into lower operating costs and improved productivity.

Placer will operate the venture and own a 51% interest, with Kinross holding the remainder. Capital and operating costs will be shared in proportion to each party’s interest. The combined assets would include Placer’s Dome mine and mill and Kinross’s Hoyle Pond mine and Bell Creek mill, as well as the past-producing Pamour and Nighthawk Lake mines.

The Dome mine is one of Canada’s most prolific producers, having yielded more than 14 million oz. gold during its 92 years of continuous operation. In 2001, the Dome underground and open-pit operations produced almost 303,000 oz. gold at a cash cost of US$208 per oz. For 2002, Placer estimates the Dome mine will produce 181,000 oz. at US$192 per oz. At the end of 2001, proven and probable reserves totalled 1.3 million oz. at a gold price of US$275 per oz. Measured and indicated resources were pegged at 2.1 million oz.

The Hoyle Pond mine produced more than 156,000 oz. at a total cash cost of US$182 per oz. in 2001. This year, Kinross expects Hoyle Pond to yield 145,000 oz. at US$193 per oz. The mine’s proven and probable reserves amount to 407,000 oz. at a gold price of US$300 per oz., with 361,000 oz. in the measured and indicated category.

The deal is designed to benefit both miners, as each has something to offer the other.

Kinross has more than 1 million oz. of reserves and in excess of 3 million oz. of resources in the Timmins camp, along with a sizable land package. The company’s problem up to now has been securing funds for early-stage exploration and for upgrading resources into the reserve category. But if the deal proceeds, these hurdles should be cleared, says Kinross Chairman Robert Buchan.

“This deal will achieve the ultimate synergies for our Timmins area assets that Kinross has been striving to attain over the past several years,” Buchan says. “These include lowering operating costs and an opportunity to process the Pamour 60 Pit and other resources, while enabling exploration and development of new projects in the camp.”

Placer will also benefit, as it needs to secure additional sources of feed for the Dome mill. Reserves from the Dome open pit are expected to be depleted in 2004, and stockpiled ore will run out shortly thereafter. Placer President Jay Taylor says Dome’s 13,000 tonnes per day will be combined with Kinross’s large highly prospective land package. “This will maximize the return to the shareholders of both partners,” he says. “Our mill needs feed beyond 2007, and Kinross needs additional infrastructure to develop and process its resources.”

Michael Fowler, a gold analyst and principal with Harris Partners in Toronto, agrees that “it’s a pretty good deal all around. The combined operations will be more efficient, with lower operating costs. Being able to blend ore from the Pamour and Hoyle Pond operations will mean the Timmins camp should produce more gold.”

The deal is expected to see the 1.3-million-oz. gold resource in Kinross’s Pamour 60 Pit converted into reserves. Currently, Pamour has probable reserves of 753,000 oz., along with measured and indicated resources totalling 1.8 million oz. Buchan says this conversion will occur with the stroke of a pen. “The beautiful thing about this deal is that we will be able to use the low-cost, modern Dome mill, thereby transforming the resources in the 60 Pit into economic reserves,” he says.

The exploration potential of the proposed joint venture is also impressive. Placer controls 24 sq. km of patented and unpatented claims around its Dome mine, whereas Kinross’s land position is about four times this size. The claims are contained within two blocks, stretching 6 km east from Timmins and straddling Highway 101. Kinross’s properties contain measured and indicated resources of 837,000 oz. gold.

Another large property-holder in the district is Echo Bay Mines (ECO-T), which has a few thousand claims at the eastern end of the district, adjoining Kinross ground. Known as Aquarius, the project has a low-grade, proven and probable reserve of 1.16 million oz., according to a 1999 study. This property position may be of interest to the joint venture, especially considering that Kinross already holds an 11% interest in Echo Bay. “There’s a definite possibility for more synergies here as well,” adds Fowler.

Before the joint venture was announced, Kinross said it planned to spend $1 million in 2002 following up on results received late in the previous year. Targets include the Pamour North area, the McIntyre Central Porphyry zone, the Conarium mine area, the Hallnor-Bonetal mine area, and the Hopson and Wetmore properties.

The formation of the joint venture is subject to several conditions, including due diligence and board approvals. Approval is expected in early July.

— The author is a Toronto-based freelance writer specializing in mining and business issues.