Kinross puts Tasiast expansion on ice

Q4 loss of US$1.5B

TORONTO • Kinross Gold Corp. confirmed Tuesday it will not proceed with the massive Tasiast expansion project in Mauritania as the gold price remains weak and the company tries to preserve its balance sheet.

Chief executive Paul Rollinson described it as a “prudent” move that is in the best interests of shareholders. In an interview, he noted that the construction period at Tasiast is expected to last 35 months, and there is a chance the gold price could drop significantly during that period and leave the company short of capital to finish the job.

Gold needs to be higher for this project to make good sense. According to a technical report filed by Kinross last year, Tasiast has a net present value of just US$500 million at a gold price of US$1,200 an ounce (very close to the current level). That does not provide a great return on a project that is expected to cost US$1.6 billion.

“This is a major capital expansion and I want to be extremely disciplined as we contemplate embarking on that expansion,” Mr. Rollinson said in an interview. He added that he continues to look at ways to improve the project.

But this news closes the book on Tasiast for the time being. The project has simply been a disaster for Kinross. The Toronto-based miner acquired Tasiast in 2010 when it spent US$7.1 billion to buy Red Back Mining Inc. The vast majority of that investment has been written off, and the Red Back deal has become the poster child for the many ill-fated acquisitions that gold miners made at the top of the cycle.

Mr. Rollinson became chief executive in 2012, and he put a focus on improving the company’s operations in order to regain investor confidence following the Tasiast mess. That strategy has worked, as Kinross has consistently met its production and cost guidance. It did so again in 2014 as it produced 2.7 million ounces at all-in sustaining costs of US$973 an ounce.

“We’ve shown the discipline to do what we said we would do,” he said.

Nonetheless, the company’s fourth-quarter results were messy. It reported a net loss of nearly US$1.5 billion due to US$932 million of impairment charges and an inventory writedown of US$168 million. An impairment of US$342.5 million was recorded on Tasiast, and Kinross also took writedowns on four other assets: Chirano, Lobo-Marte, White Gold and Kettle River-Buckhorn.

Kinross is the first of the senior Canadian gold miners to report year-end earnings. Its results suggest that rivals

We’ve shown the discipline to do what we said we would do

could have messy numbers as well as they conduct their year-end impairment tests.

Despite the disappointment at Tasiast, Mr. Rollinson said he is optimistic about the future. He noted that Kinross has other organic growth opportunities, and he indicated that M&A is also a strong possibility. He has rarely discussed acquisition opportunities since becoming CEO, but his comments on Tuesday suggested they are on the table.

“There’s no mining companies I know of that have managed to replace [reserves] and grow from just internal opportunities,” Mr. Rollinson said.

“So M&A is frankly part of the mining fabric.”