Kinross Delays South American Projects to Focus on Tasiast
February 16, 2012, 4:38 PM ESTBy Liezel Hill
(Updates with closing share price in seventh paragraph.)
Feb. 16 (Bloomberg) -- Kinross Gold Corp., Canada’s third- largest producer of the metal, will delay developing projects in Ecuador and Chile and concentrate on expanding its Tasiast mine in Mauritania.
Kinross is “re-sequencing and prioritizing our projects to make Tasiast the main focus,” Chief Executive Officer Tye Burt said yesterday in a telephone interview. The Toronto-based company plans to slow development plans for the Fruta del Norte project in Ecuador and the Lobo-Marte mine in Chile.
“While this strategy flattens production growth, we believe it makes sense to get the Tasiast development plan right,” Stephen Walker, a Toronto-based analyst at RBC Capital Markets, wrote in a note to clients. “Delaying Lobo-Marte and FDN reduces overall execution risk and could allow for incremental dividend increases.”
With about 20 million ounces of gold reserves and resources, Tasiast is “one of the world’s most exciting new gold projects,” Burt said. Kinross plunged a record 21 percent on Jan. 17 after the company said it would take a writedown on Tasiast and review its project development plans.
“We are now giving the market a lot more information and have moved that plan forward quite significantly,” Burt said.
The company plans to complete the Tasiast expansion in 2015 and is using stricter criteria for spending amid rising costs for labor, raw materials and equipment, it said yesterday in its fourth-quarter earnings statement.
Loss Widens
Kinross climbed 7 percent to close at C$11.07 in Toronto, the biggest increase since May 11, 2010. The shares have declined 4.8 percent this year.
Kinross’s fourth-quarter net loss widened to $2.78 billion, or $2.45 a share, from $72.9 million, or 6 cents, a year earlier. Earnings excluding a $2.49 billion goodwill writedown on Tasiast and other one-time items were 17 cents a share, compared with the 21-cent average of 17 analysts’ estimates compiled by Bloomberg. The company also increased its semi- annual dividend to 8 cents a share from 6 cents.
Cost of sales for each so-called equivalent ounce of gold rose 19 percent to $636 from $535. Costs are expected to increase to $670 to $715 an ounce in 2012 from $596 last year, the company said.
Kinross acquired Tasiast when it bought Canada’s Red Back Mining Inc. for about C$8 billion ($8.03 billion) in September 2010. The project had a book value of $7.1 billion as of Sept. 30 last year, of which $4.6 billion was goodwill.
Burt said he doesn’t regret the acquisition.
‘Foundational Asset’
“In a world of gold assets this is a premier, world-class foundational asset and we are thrilled to own it,” he said in the interview.
The Tasiast mine produced 200,619 ounces in 2011, and Kinross is evaluating processing options for an expansion to as much as 1.5 million ounces a year. The company will make a preliminary decision in mid-2012 and plans to start construction on the expansion next year.
Barrick Gold Corp. and Goldcorp Inc. are the largest gold producers by market value. Barrick reported today that its fourth-quarter net income dropped 0.2 percent to $959 million, while Goldcorp said yesterday its quarterly profit fell 28 percent to $405 million.
--With assistance from Simon Casey in New York. Editors: Steven Frank, Tina Davis
To contact the reporter on this story: Liezel Hill in Toronto at lhill30@bloomberg.net
To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net
