MAC: Mines and Communities

Kinross Cancels Plan to Develop Ecuadorean Gold Mine

Published by MAC on 2013-06-13
Source: Miningweekly.com, AFP, Bloomberg (2013-06-10)

In Ecuador, the Canadian company Kinross is halting development at its massive Fruta del Norte project.

The government will likely argue that this is the outcome of its protecting natural resources, and that it will mine the gold itself.

Yet, at the same time, the government has been trying to accommodate the corporations by reviewing the mining law in their favour. In this instance, it seems that Kinross has been unable to meet the deadline for this particular project.

Nonetheless, those opposing the project are no doubt celebrating...

Kinross Cancels Plan to Develop Ecuadorean Gold Mine

Liezel Hill

Bloomberg

10 June 2013

Kinross Gold Corp., Canada's third-largest producer by revenue, decided to stop developing the Fruta del Norte mining project in Ecuador after it couldn't agree with the government on economic and legal terms.

Kinross will take a charge of about $720 million in the second quarter, the Toronto-based company said yesterday in a statement. The company informed the government of its decision ahead of the expiry of the exploration concession on Aug. 1, Chief Executive Officer J. Paul Rollinson said in a phone interview.

"We've been at the negotiating table for two years," Rollinson said yesterday. "Sometimes the best deal is the one you don't sign, and we believe that's the case here."

Kinross bought the Fruta del Norte project in 2008 when it acquired Aurelian Resources Inc. for C$614 million ($602 million) in shares. Rollinson, who replaced Tye Burt as Kinross's CEO in August, is among gold producers seeking to lower production costs and curb spending in a bid to boost profits as gold trades near a two-year low.

Discussions with the government were hampered by authorities' "hardline" approach on a proposed 70 percent, revenue-based windfall profits tax that Kinross wasn't prepared to agree to, Rollinson said. The government indicated it would not extend the concession or agree to Kinross seeking a partner or buyer for the project, the company said.
`Accelerate' Development

Ecuador's Non-Renewable Natural Resources Minister Pedro Merizalde said the government will "accelerate'' the development of Fruta del Norte without Kinross, according to a statement from the ministry e-mailed yesterday.

"We haven't ceded in the face of the transnationals' proposals,'' Merizalde said in the statement. "The state maintains sovereignty over the management of its natural reserves.''

Kinross said it expects about $700 million of the charge on Fruta del Norte will be non-cash and about $20 million represents accrued severance and closing costs.


Canada's Kinross Gold says it abandons Ecuador project

AFP

11 June 2013

MONTREAL - Canada's Kinross Gold Corp. said it was halting development at its massive Fruta del Norte project in Ecuador because it had failed to reach an agreement with Quito over taxes.

The decision move "will result in a charge of approximately $720 million (about $US 706 million) in the second quarter," the mining giant said.

"After more than two years of negotiations on exploitation and investment protection agreements for the project, the government of Ecuador and Kinross have been unable to agree on certain key economic and legal terms which balance the interests of all stakeholders," the company said in a statement.

"Therefore ... Kinross has concluded that it is not in the interests of the company and its shareholders to invest further in developing FDN."

Fruta Del Norte was discovered by Ecuadoran and Canadian geologists in 2006 under a patch of Amazon rainforest in south-eastern Ecuador. The site has estimated reserves of 6.7 million ounces of gold, and nine million ounces of silver.

A senior Ecuadoran official said Monday that Kinross had planned to invest more than $1 billion through 2015 in the project, but opposed Quito's insistence on a 70-percent tax on windfall profits.

"We have not surrendered to the proposals of the transnational corporations," said Pedro Merizalde, Ecuador's minister of non-renewable resources, as he announced Kinross ending its operation. "The state maintains its sovereignty over the management of natural resources."

Merizalde said that Kinross was leaving FDN "because the expected benefits were not enough to satisfy their shareholders."


Kinross Gold not to proceed with Ecuador project

Henry Lazenby

Miningweekly.com

10 June 2013

TORONTO - Canadian miner Kinross Gold on Monday announced that it would not continue with the development of the $1.3-billion Fruta del Norte (FDN) project, in Ecuador, saying it was unable to agree with the government on certain key economic and legal terms which were to balance the interests of all stakeholders.

The company said it had informed the Ecuador government of the decision and had asked for its cooperation in ensuring an orderly transition that respected both parties' interests.

Kinross said that, after more than two years of negotiations on exploitation and investment protection agreements for the project, and despite pending legislative amendments to the mining and tax law regime in the country, it had concluded that it was not in the interests of the company and its shareholders to invest further in developing FDN.

"We have said that we will exert strict capital discipline across our company, that we will allocate our capital only to projects which meet our investment criteria, and that we will only enter into agreements that are in the best interests of the company and its shareholders.

"After a great deal of effort to arrive at a mutually agreeable outcome, it is unfortunate that the parties were unable to reach an agreement on FDN which would have met those criteria. That said, we respect the government of Ecuador's sovereign authority and its right to determine how its resources are developed," Kinross CEO Paul Rollinson said.

The gold miner added that, despite Ecuadorian law permitting an extension of the economic evaluation phase of the project for up to 18 months, or the suspension of the start of the exploitation phase, either of which would have enabled negotiations to continue beyond the current August 1 deadline, the government had indicated that it would not agree to such an extension or suspension.

Any possible sale of the project was currently subject to the prior approval of the government, and the government had also indicated it would not support efforts by Kinross to solicit a potential new partner, or a buyer. As previously disclosed, when the current economic evaluation phase of the project expires on August 1, the La Zarza concession, which contains the entire FDN mineral resource, would revert to the government.

The company would now assist its employees and local stakeholders during a transition period as it reduces its level of activities in Ecuador in the coming months.

Kinross' decision to stop the development of FDN would result in a charge of about $720-million in the second quarter. Of this, about $700-million was expected to be noncash, reflecting the company's entire net carrying value of the FDN project, and about $20-million in accrued severance and closure costs.

Kinross took a $3.2-billion charge related to its Tasiast mine, in Mauritania, and the Chirano gold mine, in Ghana, both of which were acquired in the company's $7.1-billion takeover of Red Back Mining in 2010. It previously wrote down $2.94-billion in goodwill related to the two mines.

Kinross also announced on Monday that it had extended the maturity dates of its $1.5-billion revolving credit facility and $1-billion term loan. The credit facility was extended by one year to August 10, 2018, and the term loan was extended by two years to August 10, 2017.

The term loan had no mandatory amortisation payments and with these extensions having been completed, the company had no debt maturities before 2016 and only regular principal amortisation payments on the remaining $170-million balance of the Kupol term loan.


Codelco could take over from Kinross in Ecuador

Cecilia Jamasmie

Mining.com

17 June 2013

Chile's Codelco, the world's largest copper producer, is the runner up for taking over Kinross Gold's Fruta del Norte project, the largest gold deposit in Ecuador, after the Canadian miner abandoned the endeavour last week because it was unable to reach an agreement with local authorities.

According to Ecuador's official news agency, Andes (in Spanish), the country's administration is looking forward to August 1, the day Kinross' concession expires, as it wants to hit the gas pedal on the mine construction.

Although the South American country has several alternatives from which to choose in order to proceed with Fruta del Norte, sources quoted by Andes believe that Chile's Codelco will be the chosen option, as the copper giant is already involved in the Ecuadorian mining sector.

In November 2011, Codelco and Ecuador's National Mining Company (ENAMI EP) signed an agreement to explore that country's copper potential, which could be as high as $200 billion in untapped deposits. Under the agreement, Codelco agreed to invest between $10 million and $30 million in Ecuador before 2015.

By mid-2012 the Chilean copper titan had already invested $3.5 million in basic exploration of 20 prospects. Codelco is also working with ENAMI EP to develop the touted Junin copper deposit, in the northern region.

Failing that, Ecuador might hire a third party to develop and exploit the resource. That company would have very limited rights over the total revenue coming from the mine, as described in the recently approved mining law.

By the end of last year, Fruta del Norte had 6.715 million ounces of proven and probable reserves of gold, as well as 67,000 ounces of measured and indicated gold resources. Silver resources were estimated at 9 million ounces with measured and indicated resources totalling 1.412 million ounces of silver.

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