Kinross Gold continues to run mines in Russia as sale process drags on
Toronto-based company insists it's not benefiting financially from operations
Toronto-based Kinross Gold Corp., which said in early March that it was quitting Russia, is still running its Kupol gold mining complex — which means it will likely generate tens of millions of dollars in tax revenue and other payments for Vladimir Putin's regime.
Kinross's situation shows that it's easier to announce plans to leave an international pariah state than it is to actually vacate smoothly. Earlier this week, the company disclosed that it paid US$195 million to the Russian government for the 2021 tax year in the form of taxes, royalties and fees.
Spokesman Louie Diaz said Wednesday that the 2021 tax payments, which covered January to December of that year, were made in the 2021 calendar year but could not specify when exactly they occurred. Diaz said Kinross continues to operate its Russian mines while it works to close a US$ 680- million sale to Jersey-based Highland Gold. He said the company would not benefit financially from its Russian operations.
“We're trying our hardest,” said Diaz. “Both parties are trying diligently to close the sale.”
Diaz did not answer when that deal is expected to close, and gave several reasons why the Russian mines have continued to operate.
“The reason we're doing that is to manage the environmental impact,” he said, adding, “It's also part of the agreement during the sale that we had to maintain the assets before the divestment.”
Mines can be placed into “care and maintenance,” to manage the environmental effect, but that costs money because it requires keeping a workforce on site. The company has continued to employ more than 2,000 people in Russia, Diaz said.
Kinross's Kupol mining complex, located in the far east of Russia, approximately 7,000 kilometres from Ukraine, had long been a star performer, contributing US$442.7 million to the company's operating earnings in 2021, more than any other mine. Excluding losses from non-operating segments, total operating earnings were US$765.5 million.
Diaz said the profits generated between now and whenever the sale closes would remain in Russia and become working capital for the mine. The company is treating its Russian operations as discontinued assets in its accounting.
Diaz acknowledged Kinross's Russian subsidiary would pay taxes and royalties on profits during this time. “Even in 2021, our assets in Russia were the largest operating earnings from Kinross,” he said. “So the more earnings the more taxes basically.”
Canada, the United States, and other western countries have imposed sweeping sanctions against Russia, designed to inflict financial pain.
Bill Browder, a former foreign investor in Russia and politically active critic of Putin's regime, said that every business has known for years that Russia is a corrupt country but those that waited to divest are now left with “unpleasant choices” about how to exit.
“Mining companies may not have to worry about public anger the way that consumer products companies do,” Browder told the
Financial Post. “But I think every western company is going to be looked at very harshly if they don't basically disinvest from Russia, because nobody wants to be involved with anybody who's benefiting from or benefiting the regime.”
Kinross had resisted changing its operations in Russia, announcing on Feb. 23 that sanctions would not affect its operations there. The company said it planned to continue even as a wide range of other companies had announced they would exit the country.
On March 2 — one week after Russia began its invasion of Ukraine — Kinross said it was in the process of suspending its mining operations in Russia, which it later walked back.
“Kinross Gold Corporation is deeply concerned about the loss of life and destruction in Ukraine and wishes to express its sympathy and support for the people who are suffering because of this tragic situation,” the company said in a press release on March 2.
The company also announced a Us$1-million donation to the Canadian Red Cross Ukraine Humanitarian Crisis Appeal.
Based on its disclosures about tax, royalties and fees paid to foreign governments under the Extractive Sector Transparency Measures Act, Kinross has paid more than US$1 billion to Russia since 2016.
Nonetheless, Kinross will continue operating its mines in Russia until the sale to Highland Gold closes. The company has said it needs approval from the Russian government to complete the deal.
In April, Kinross announced a deal to sell its 90-per-cent stake in a mine in Ghana for US$225 million.
That deal was slated to close May 31; the Ghanian government issued a letter of no objections.