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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.
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