Gold miner Kinross Gold Corporation (KGC) announced that it will stop further development of the Fruta del Norte (FDN) project in Ecuador. The decision was taken after the Government of Ecuador and Kinross failed to agree on certain key economic and legal terms.
By halting the development of FDN, Kinross is expected to take a charge of roughly $720 million in the second quarter. Of the total amount, about $700 million is expected to be non-cash, reflecting Kinross's entire net carrying value of the FDN project, with the balance (about $20 million) representing accrued severance and closure costs.
While an extension of the economic evaluation phase of the project for up to 18 months or suspension the commencement of the exploitation phase was permissible under the Ecuadorian law, which would have enabled negotiations to continue beyond the current August 1, 2013 deadline, the government has not consented to such extension or suspension. Additionally, the government will not support Kinross seeking a potential new partner or buyer for the project.
Kinross stated that it will allocate its capital only to projects which would meet its investment criteria and that it will only enter into agreements that are in the best interests of the company and its shareholders.
Kinross, which is among the prominent players in the gold-mining industry along with Barrick Gold Corporation (ABX), Goldcorp Inc. (GG) and Newmont Mining Corporation (NEM), released its first quarter 2013 results in May 2013. The company reported adjusted (excluding one-time items) earnings of 15 cents per share in the first quarter of 2013, beating the Zacks Consensus Estimate of 12 cents but falling behind the year-ago earnings of 17 cents a share.
On a reported basis, the company posted a net profit of $160.5 million (or 14 cents per share) in the reported quarter, up 61% from net earnings of $99.6 million (9 cents a share) recorded in the year-ago quarter.
Revenues increased 5.3% year over year to $1,058.1 million due to higher gold equivalent ounces sold. Sales came ahead of the Zacks Consensus Estimate of $1,033 million.
Kinross expects to produce about 2.4–2.6 million gold equivalent ounces from its current operations in 2013 and forecasts cost of sales of $740-$790 per gold equivalent ounce for the year.
Kinross currently retains a Zacks Rank #4 (Sell).
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