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Kinross Reveals Tasiast Feasibility Study Results

Zacks Equity Research

Gold miner Kinross Gold Corporation (KGC) has announced Tasiast expansion feasibility study results. The study, which is based on an optimal mill size of 38,000 tons per day (t/d) replacing the existing 8,000 t/d mill size, produced promising results indicating Kinross’ potential to generate significant additional cash flow per share and production at overall lower costs.

The expanded project is expected to produce an average of 848,000 gold ounces annually for the first five years starting 2018 at cash costs of $501 per ounce and generate free cash flow of $2.2 billion during this time period. Estimated mineral reserves from this mine are expected to increase almost 50% to 9.6 million ounces in the same time period. These estimates are based on a $1,350 per ounce gold price assumption.

As Tasiast is an already operating mine, it has a basic infrastructure and a well-documented mineral resource. These reasons coupled with the completion of major permitting and concession rights for the expansion have led to a reduced estimated capital expenditure of $1.6 million and lower estimated operating expenditures, which together have considerably enhanced the estimated internal return rate of the project (pegged at roughly 17%). The mill expansion is also expected to augment the Tasiast mine’s production by three times, thereby avoiding the risks associated with a greenfield project.

In addition to this, the expansion is expected to generate substantial, positive economic benefits for Mauritania and its people, including a considerable increase in gross domestic product (GDP) resulting from additional taxes, wages, earnings and locally supplied goods and services over the life of the mine. The expansion is expected to deliver $600 million in direct incremental contributions to the Government of Mauritania in form of taxes and royalties.

The new mill will house a primary crusher, SAG and ball mill grinding circuit, and a conventional carbon-in-leach (CIL.V) circuit and will phase out its existing dump leach facilities in 2019. However, the existing dump leach facilities can be made available for lower grade ore in the future if it becomes economically viable, or if new ore is discovered in near-mine deposits.

Though the final construction decision for the Tasiast expansion project is not expected to be made before 2015, a number of activities will be pursued in the meantime so as to maintain project momentum which will further enhance the viability of the expansion plan.

These activities include improving project economics, de-risking execution variability in supply chain, logistics, and contracting and labor in the construction phase of the potential expansion project, enhancing investment conditions in Mauritania, examining project financing options with core lender groups and exploring targets and advancing potential new mineral reserve and resource estimates within the mine's footprint.

Kinross currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the mining sector include AngloGold Ashanti Ltd. (AU), Golden Star Resources, Ltd. (GSS) and Richmont Mines Inc. (RIC). While AngloGold carries a Zacks Rank #1 (Strong Buy), Golden Star Resources and Richmont Mines hold a Zacks Rank #2 (Buy).

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