* Moving ahead with 38,000 tpd mill study at Tasiast
* Pre-feasibility shows 20-year mine life
* Output of 830,000 ounces annually in first five years
* Full feasibility to begin immediately, due Q1 2014
* Shares down 2.7 percent to C$5.41 in Toronto
By Julie Gordon
TORONTO, April 29 Kinross Gold Corp on
Monday estimated the cost of a scaled-back expansion of its
struggling Tasiast mine in West Africa at $2.7 billion, more
than some analysts had expected, sending its shares 3 percent
The company said it was pushing ahead with a feasibility
study for a new 38,000 tonne-per-day mill at the project,
located in remote Mauritania, despite plunging gold prices and
investor pressure in the mining sector to cut back on spending.
Kinross said it would make a final decision on the expansion
after the study is completed in the first quarter of 2014.
Still, it is already spending some $624 million on
infrastructure and other aspects of the project this year.
"It's not a definitive pedal-to-the-metal, we're building
this thing," said Chief Executive J. Paul Rollinson in a
conference call with analysts. "It's an on-to-the-next-stage of
study and we'll stop, look and listen when we complete that
Miners across the globe are facing shareholder revolts over
costly takeovers and massive project cost overruns. They have
cut spending in an effort to rein in runaway capital and
The world's largest gold producer, Barrick Gold Corp
, has stopped work on all new projects to save funds,
with the notable exception of its $8.5 billion Pascua-Lama
development on the border of Chile and Argentina.
Kinross, which acquired Tasiast as part of its $7.1 billion
takeover of Red Back Mining in 2010, had originally planned a
larger, 60,000 tonne-per-day option, but abandoned that idea
when it proved too costly and risky.
Rollinson said on Monday that Kinross must consider capital
and operating costs, power options and the price of gold before
giving the new mill the final go-ahead. If the economics do not
add up, it could continue using its existing mill.
"The priority for us is balance-sheet strength," he said.
"We're not going to put the company into a situation where we're
too stretched to build a project."
MORE GOLD OUNCES
The prefeasibility study, outlined on Monday, contemplated a
30,000 tonne-per-day option, which would produce around 830,000
ounces of gold annually over its first five years of production.
Cash costs would average $500 an ounce over those years.
Kinross said bumping that up to a 38,000 tonne-per-day
option is optimal, as it will allow the company to shut down the
existing mill and wrap that production into the new facility.
Tasiast produced about 185,000 ounces at the existing 8,000
tonne-per-day mill in 2012. Total costs of sales were $1,061 an
ounce in the fourth quarter and averaged $889 an ounce in 2012,
making it one of Kinross's most expensive gold mines.
Barclays Capital analyst Farooq Hamed said in a note to
clients on Monday that the expansion's operating and capital
costs came in slightly higher than he had expected.
"We believe the market will view the cost assumptions as
being high, creating more risk for the project and potentially
more questioning of its viability given the scare the recent
gold price volatility has added to sentiment," he said.
Gold prices plunged to a two year-low around $1,321 an ounce
earlier this month, dragging down the shares of gold miners.
Bullion has since recovered to around $1,465 an ounce, though it
is still well below the Jan. 1 price of some $1,675 an ounce.
Kinross's shares were down 2.7 percent at C$5.41 on Monday
afternoon on the Toronto Stock Exchange. The stock has lost more
than 44 percent of its value so far this year.
Even without a final decision on construction, Kinross
dropped some $180 million on Tasiast in the first months of 2013
and has another $445 million planned this year for a water
pipeline, infrastructure projects and equipment purchases.
That $445 million will come out of the planned $2.7 billion
capital budget for the expansion, with much of the remaining
budget earmarked for building the mill and crusher.
Kinross said that the infrastructure work being done now is
required to improve operations at Tasiast regardless of the
potential expansion decision.
The massive Mauritanian gold deposit was supposed to help
launch the Toronto-based miner into the big leagues, but has so
far failed to live up to lofty expectations.
Kinross, which operates mines in the Americas, West Africa
and Russia, took a $3.21 billion impairment charge in the fourth
quarter of 2012 related to Tasiast and a second West African
mine acquired in the Red Back takeover.
That followed a previous $2.94 billion charge in 2011, also
related to the two West African mines. Despite the writedowns
Kinross has continued to push the Tasiast expansion ahead.
The pricey Red Back takeover and operational struggles at
Tasiast cost long-time CEO Tye Burt his job last August.
Rollinson, previously head of corporate development at Kinross,
has kept Tasiast as the company's top priority.
While the company has continued to fund Tasiast, it slashed
spending on some of its other projects, cutting its planned 2013
capital expenditures to $1.6 billion, down by about $325 million