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TORONTO – Kinross Gold Corp. is looking at a plan to downsize initial production from its troubled Tasiast mine in Mauritania, as it tries to mitigate the impact of major cost pressures on the operation.
New chief executive Paul Rollinson also said the company is implementing a new company-wide cost-reduction initiative as its capital and operating costs continue to escalate. The announcements came in the company’s lower-than-expected second quarter earnings report, released Wednesday, a week after former chief executive Tye Burt was fired.
Toronto-based Kinross said it will study an option to build a mill at Tasiast that would process 30,000 tonnes of material, compared to a prior plan of 60,000. The result would be much lower gold production in the early years of mining (before the mill is expanded), but it could also mean lower costs.
The case for a smaller mill “is based on the impact of industry-wide pressures on capital costs, and a better understanding of the Tasiast orebody and associated mine plan,” Kinross said in a statement. “Notwithstanding lower production in the initial years of operation, a staged approach to the Tasiast expansion could reduce initial capital costs and project execution risk, while delivering a rate of return comparable to constructing a larger initial mill.”
Kinross acquired Tasiast in the US$7.1-billion acquisition of Red Back Mining Inc. in 2010, and immediately set its sights on a massive expansion of the existing mine. Cost inflation has led the company to consider a wider variety of development options.
For some investors, a smaller and more cautious approach to development may be a positive.
Meanwhile, the existing Tasiast mine continues to underperform. Kinross slashed its 2012 production forecast from West Africa by as much as 23% — and raised cost guidance — as the company faces a number of challenges at Tasiast, including lower-than-expected grades.
For the rest of this article, please go to the National Post website: http://business.financialpost.com/2012/08/08/kinross-gold-profit-falls-as-costs-soar-output-slows/