File photo of the Tasiast gold mine in Mauritania.
Kinross Gold Corp. says it's taking the next step in a proposed expansion of its Tasiast gold mine in Mauritania following positive results from a pre-feasibility study.
Toronto-based Kinross said on Monday it's getting started immediately on a feasibility study and that it estimates the initial capital cost of the expansion project would be about $2.7-billion (U.S.).
But chief executive officer J. Paul Rollinson cautioned that Kinross will be very careful to ensure the mine makes economic sense before going ahead with construction.
"Although there is considerable work to be done at the feasibility study level before we decide whether to proceed with construction, the results of the [pre-feasibility study] are encouraging," he said in a news release.
"As we continue to evaluate the project, we remain firmly focused on preserving the strength of our balance sheet," he said.
"It's not a definitive 'pedal-to-the-metal, we're building this thing'," Mr. Rollinson said on a conference call for analysts Monday.
"We're not going to rush it.
"The priority for us is balance-sheet strength," he said. "We've got a lot of gold in the ground and we've got a lot of options. That's the key."
One cost-reducing option is using natural gas rather than heavy oil as the energy source and a joint venture with the Mauritanian government to produce offshore natural gas is being explored, Mr. Rollinson said.
The Tasiast expansion project has been a major headache for Kinross, Canada's third largest gold producer.
The company booked a $2.49-billion writedown on Tasiast in January, 2012, and later in the year took a further $3.206-billion impairment charge on 2012 earnings, mostly attributable to Tasiast.
Kinross and other miners have been hit by high operating and capital costs, hobbling expansion projects around the world.
A new mill at Tasiast would be expected to produce an average of about 830,000 ounces of gold per year over the first five years of production, Kinross said in the news release.
The pre-feasibility study concluded that building a single new 38,000 tonne-per-day (tpd) mill would make the most sense.
All-in cash costs would be $735 per ounce and the initial rate of return would be about 11 per cent, based on an assumption of the price of gold at $1,500 per ounce.
Toronto-based Kinross acquired the West African project as part of its $7.1-billion takeover of Red Back Mining in 2010.
Tasiast was intended to be a key part of Kinross' growth plans. The company has mines and projects in Canada, the United States, Brazil, Ecuador, Chile, Ghana, Mauritania and Russia.
Kinross said on Monday the feasibility study is expected to be completed in the first quarter of 2014.
Bertrand Marotte