Phase 1 Tasiast expansion ‘the right project for Kinross at the right time’

TORONTO (miningweekly.com) – Canadian gold producer Kinross Gold has taken a Phase 1 expansion decision on revamped development plans for the Tasiast mine, in the West African State of Mauritania.

The $300-million first-phase expansion was expected to nearly halve Tasiast's production cost of sales per ounce and boost yearly output by 87% from 2018 onwards, when compared with 2015’s results.

The TSX- and NYSE-listed company on Wednesday outlined a two-pronged approach that would lift processing capacity from 8 000 t/d to 12 000 t/d, and to 30 000 t/d by 2020, through a $620-million second-phase expansion that would make it the company’s largest and lowest-cost operation, while extending the mine life to 2026.

“The two-phased approach strikes the right balance between growth and preserving balance-sheet strength; it is well suited to the current gold price environment. Phase 1 achieves Kinross's near-term goals with a manageable investment while allowing the company to reassess market conditions and further optimise the project before deciding to proceed with Phase 2,” stated president and CEO Paul Rollinson on an analyst conference call.

“In short, this is the right project for Kinross at the right time."

PRICE LEVERAGE
With the initial expansion ramped up, Kinross expected to produce 409 000 oz/y from Tasiast at all-in sustaining costs (AISC) of $760/oz, rising to 777 000 oz/y during the second phase with AISC falling to $665/oz.

The spot gold price had risen 15.11% since the start of the year to $1 227/oz on Wednesday, to a fraction above Kinross’s base-case scenario price of $1 200/oz for the two developments.

Bank of America Merryll Lynch Global Commodities research analysts on Tuesday said that tighter monetary policy, accompanied by low or falling inflation, had been the most bearish macroeconomic backdrop for gold in the past 40 years. “Hence, we believe the yellow metal should decline into the first Fed rate hike. Yet, the global economy may gradually reflate, suggesting prices may bottom next year,” the bank said.

Bank of America forecast the gold price to average $1 088/oz this year, climbing to $1 213/oz in 2017. At $1 200/oz, the Tasiast asset now held a net present value (NPV), at a 5% discount, of $480-million, providing a significant price upside. If the gold price rose to $1 500/oz, the NPV could rise to $2.06-billion.

COST SAVINGS
The combined Phase 1 and Phase 2 expected capital expenditure of about $920-million was significantly lower compared with the 2014 feasibility study estimate of $1.6-billion for the new-build 38 000 t/d plant.

Kinross, the world's fifth-largest gold producer with operations in diverse geographic locations, advised that the forecast reduction was achieved through a combination of factors, including a scale effect of about 20% lower throughput capacity; more efficient leveraging of the existing mill and infrastructure; a leaner approach to engineering and construction management facilitated by the two-phased approach; and generally more favourable market conditions for procurement of equipment packages and construction contracts.

As the combined Phase 1 and Phase 2 approach planned a lower throughput rate compared with the 2014 feasibility study, as well as a slightly higher forecast processing cost per tonne, the pit design was reduced slightly and the cutoff grade increased, thereby decreasing the estimated proven and probable mineral reserves from nine-million ounces, as at December 31, 2015, to 8.2-million ounces.

The resulting estimated grades increased slightly from 1.8 g/t to 1.9 g/t. Tasiast's estimated measured and indicated mineral resources also decreased slightly, from 3.4-million ounces to 3.2-million ounces, with estimated grades increasing to 1.3 g/t from 1.2 g/t.

Despite the mine’s significant future upside, Kinross had not always had a happy story with the mine it acquired through a $7.1-billion acquisition of Red Back Mining in 2010. The mine had failed to live up to expectations and the gold price meltdown over the last few years had prompted Kinross to book at least $6-billion in write-downs on the project.

Kinross Gold’s NYSE-listed stock price had gained 46.72% since the start of the year to $3.34 apiece on Wednesday.