Details vague on Tasiast delay

Published by EPCM World

Last week Kinross Gold Corp. announced a six to nine month delay with their already unpopular West African Tasiast project – but the details as to why they are delayed have been vague. Kinross CEO Tye Burt has defended the decision to delay development, stating that his company is simply being “prudent.” Industry sources are now saying the mine will effectively ‘shut-down’ further development in reaction to new geological findings at the site. In a mid-2011 press release Kinross described Tasiast as a mine “within an extensive gold system that is largely underexplored.” Original geological reporting showed evidence that gold mineralization would continue laterally and at depth, south of the current operating mine. What has changed?

The specific details of the new findings remain unconfirmed, but Kinross has reported that they will need up to nine months to plan and allow for these changes. The EPCM contractor is expected to redeploy all of their Tasiast project team to other sites.

This delay, combined with a projected cost increase of 10 - 20% has hurt Kinross’ stock price considerably. Pawel Rajszel, Analyst at Veritas Investments, believes that Kinross’ costs could be as high as 20% or more, as initial analyst estimates do not take into account a tax increase in Ghana – “which I think is going to happen.” Rajszel points out that similar rises in production costs are being seen by other gold producers, too. “We’re seeing other gold miners announce roughly ten percent cost increases. Barrick is guiding towards 15 percent.” Considering the high price of gold, these costs will still allow for massive profit, but for Kinross? “Even at current gold prices, especially with this increase in cost, I am not expecting them to generate any free cash flow for the next two years at least,” says Rajszel. Greg Barnes of TD NewCrest and Analysts with BMO Capital Markets were unwilling to comment on these reports.

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