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Kinross will use study to evaluate Tasiast expansion

The Tasiast mine was supposed to vault Kinross into the big leagues. But instead, the massive gold mine has triggered multiple write-downs and cost Tye Burt his job as Kinross’s chief executive.


Kinross Gold Corp. will complete a critical study on its Tasiast gold mine in the first quarter of the new year, a step that will determine whether the company will expand its troubled mine in the Mauritanian desert.

Tasiast, which Kinross acquired when it bought Red Back Mining Inc. for a staggering $7.1-billion (U.S.) in 2010, was supposed to vault Kinross into the big leagues.

But instead, the massive gold mine has triggered multiple write-downs and cost Tye Burt his job as Kinross's chief executive.

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Now, the feasibility study will show whether it makes sense for Kinross to ramp up Tasiast's mill so that it can more than quadruple the amount of ore it processes to 38,000 tonnes per day from the current 8,000 tonnes.

"The feasibility study is addressing a simple question: Can we generate value for shareholders by building a bigger mill?" Kinross CEO J. Paul Rollinson said in an e-mailed statement.

"We would only consider proceeding if the answer to that question is yes."

Mr. Rollinson has said Kinross will not make a final decision on the expansion until 2015 at the earliest.

A number of analysts were less than thrilled with the results of Kinross's preliminary study, which was released in April and showed that it would cost an initial $2.7-billion to increase the mill and would generate an internal rate of return of 11 per cent.

The preliminary study found that the expansion would boost Tasiast's production to about 830,000 ounces of gold per year and would cost an average of $735 per ounce for the first five years. (The mine produced nearly 200,000 ounces in 2012.)

The study used an average gold price of $1,500 an ounce for overall project economics, which is $300 higher than what gold is trading at today.

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The lower gold price has wreaked havoc on mining companies, causing them to suspend projects, divest mines and cut jobs to conserve cash.

Kinross has written off most of Tasiast's value.

The company originally planned to expand the West African mill to 60,000 tonnes of ore per day. Now the potential expansion is 30,000 tonnes.

The company has lost 75 per cent of its value since it bought Red Back Mining. Kinross last traded at $4.71 (Canadian) a share in Toronto.

Under Mr. Rollinson, Kinross has focused on slashing costs.

For the new year, Kinross has forecast capital expenses of less than $1-billion (U.S.) compared to 2013's expected capital expenditures of approximately $1.4-billion.

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About the Author
Economics Reporter

Rachelle Younglai is The Globe and Mail's economics reporter. More


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