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.
Kinross, the beleaguered gold producer whose stock price has been hammered of late due to a $4.6 billion writedown and alleged violations of securities laws, will continue pouring gold at its Tasiast mine in Africa until the year 2046, according to a technical report released on Friday.
The company has endured a string of bad news, beginning with a loss of $2.78 billion in the fourth quarter, having been forced to writedown the value of its Tasiast project in Mauritania. The writedown was in connection to the company’s 2010 acquisition of Red Back Mining and its Tasiast mine for $7.1 billion, of which $4.6 billion was recorded as goodwill. US securities litigation firm Holzer Holzer & Fistel then announced it is investigating potential violations of federal securities laws by Kinross, specifically whether Kinross knowingly overstated gold grades at its Tasiast property over the last year. Both factors led to a selloff in Kinross stock. The $11 billion Canadian company (TSX:K) with projects around the world has lost some $3 billion of its worth on the Toronto stock market since the beginning of the year. On Friday Kinross closed at $9.75.
According to the independent report (found on sedar.com), the mine, with reserves of 7.4 million ounces, will continue producing gold until 2046 at a rate of 8,000 tpd. After mining is completed in 2025, a CIL plant will continue to process low-grade stockpiles for one year.
Commercial production at Tasiast began in 2008 and up to the end of last year pulled 0.7 million ounces out of the ground. In July last year Tasiast reached 600,000 ounces, at which point a 2% net royalty to Franco-Nevada Corp. kicked in. Kinross also pays a 3% royalty on gross revenues to the Mauritania government.
The mine has the potential for a 16-20-year expansion, according to the report:
Further mineral reserves may be defined from the upgrade and inclusion of the West Branch prospect. In addition, prospects exist both within the 312 square kilometre El Gaicha Mining permit and in the surrounding exploration permits and there is potential to delineate additional mineral resources both at the Tasiast deposits and at the regional exploration targets.
Kinross is currently in the process of undertaking a feasibility study for the Tasiast expansion project, based on a 16-20 year mine plan for the expanded project. The feasibility study will review several processing options including an expanded CIL process with a capacity of up to approximately 22 Mt/a, heap leach operations of fresh mineralization, and expanded dump leach operations.
The report says Kinross should expect to pay $182 million in capital costs to sustain mining until 2046, the most significant outlay being $62 million to be spent in 2012 on CIL plant modifications. The average mining cost is pegged at $1.78 per tonne, or $52.01/t milled.
Image of the Tasiast mine courtesy of Kinross Gold
Comments
Mike Whitney
Good for Kinross. They will weather the storms. This is a tough business.