Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
A day after announcing the sale of its Russian assets, Kinross Gold (TSX: K; NYSE: KGC) has entered into an agreement with Asante Gold (US-OTC: ASGOF; CSE: ASE) to potentially sell the company’s 90% interest in the Chirano gold mine.
The open-pit and underground mining operation in southwestern Ghana produced 154,668 gold-equivalent oz. in 2021, compared to 166,590 in 2020 and is located immediately south of Asante Gold’s Bibiani gold mine. The government of Ghana carries a 10% interest.
“From time – to time, Kinross receives unsolicited proposals regarding its assets, including Chirano, which we will explore for the benefit of our shareholders,” Louie Diaz, Kinross Gold’s vice-president of corporate communications, told The Northern Miner. “While Kinross is in confidential discussions with Asante, there is no guarantee a deal will be reached.”
Asante Gold’s CEO Dave Anthony described the agreement as a potential game changer for the company. “Last year we picked up Bibiani (gold mine) which is coming online in the third quarter… and then we could bring Chirano into the mix, which could add another significant rate of production to our profile,” he told The Northern Miner over the phone.
Chirano has been on Asante’s radar for a while because of its location near the company’s assets and because Asante controls some land around it, Anthony said. “We all saw Chirano as being a fabulous asset, we have been interested in the asset for a long time.”
While the agreement is still in its early stages, Asante’s CEO hopes that it won’t take too long to close it.
On Apr. 5, Kinross announced the sale of its Russian assets to Highland Gold Mining for a total of $680 million in cash, a month after suspending its operations in the country due to the ongoing war between Russia and Ukraine.
The company, which has been operating in Russia for about 25 years, will receive $400 million for its Kupol underground mine and the surrounding exploration licences in the country’s Far Eastern region of Chukotka and $280 million in cash for Udinsk, the first project it expected to develop on the Chulbatkan licence, acquired in 2020.
Analysts have described Kinross’s move, which is subject to the Russian government’s approval, as positive, but were wary about the relatively long payment schedule spread evenly over the 2022-2027 period.
“We note that a heavily staggered payment plan mutes the immediate benefits to Kinross,” Jackie Przybylowski, a BMO analyst, wrote in a research note to clients on April 5.
In a research note, Scotiabank analyst Tanya Jakusconek stated that the deal might see some “credit risk” given the size of the transaction “relative to Highland Gold.”
The Chirano gold mine began production in October 2005. Its full-year production in 2021 decreased compared to 2020 due to lower grades, Kinross said in its annual report. The mine site exploration program in 2021 added 400,000 oz. Gold of measured and indicated mineral resources, which helped expand its mine life by one year to 2026.
Asante is currently focused on developing to production its Bibiani mine situated in western Ghana. The fully permitted mine previously witnessed a gold production of about 5 million ounces.
At presstime in Toronto, Kinross Gold was trading at C$7.28 per share within a 52-week trading range of C$6.32 and C$10.05. The company has 1.3 billion common shares outstanding for a market cap of C$9.4 billion ($7.49bn).
