Kinross produces first gold at Kupol in Russia’s far north

Kinross Gold (K-T, KGC-N) has produced the first gold-silver dore from its low-cost Kupol mine north of the Arctic Circle in Russia, the first of three major new development projects for the company that are expected to come onstream this year.

The news sent Kinross’ shares in mid-day trading on the Toronto Stock Exchange up 26 apiece to $19.71 on a trading volume of 1 million shares. The company has a 52-week trading window of $10.58-$27.16.

The Kupol mine, about 220 km southeast of Bilibino, the nearest major city in the Chukotka region of the Far Eastern federal district, is made up of an open pit and underground mine and conventional mill.

The mine is expected to reach its full production rate of 3,000 tonnes per day by October. About 1,200 people will be on the payroll when the mine becomes fully operational.

Kupol is operated by the Chukotka Mining and Geological Co., in which Kinross holds a 75% stake and the local Chukotka government the remaining 25%.

Kinross’ share of Kupol’s production this year is expected to be about 365,000-390,000 gold-equivalent oz., at an average cost of sales of US$235 to $245 per oz.

The company’s share of Kupol’s proven and probable reserves is 6.8 million tonnes grading 14.95 grams gold per tonne for a total of 3.28 million oz. gold. Its share of the mine’s proven and probable reserves of silver is 6.82 million tonnes grading 180.4 grams silver per tonne for a total of 39.57 million oz. silver.

In addition to Kupol, Kinross has two other projects that are expected to move into production this year. Its Paracatu expansion project in Brazil’s Minas Gerais province is scheduled to begin commissioning in July, while the Buckhorn project in Washington State is expected to start commissioning in October.

All together the three mines are forecast to vault Kinross’ production to between 2.5 and 2.6 million gold-equivalent oz. in 2009, while reducing the company’s average cost of sales per oz.

Kinross took over the Kupol project in February 2007 when it acquired Bema Gold. The deposit consists of a high-grade gold and silver vein that remains open along strike.

Over the first 6.5 years of its life, the mine is forecast to produce an average of 413,000 oz. gold equivalent annually (Kinross’s share) at a cost of sales of roughly $205 per oz. on a co-product basis using a gold price of US$400 per oz. and a silver price of US$6 per oz.

Kinross believes Kupol will become one of the lowest cost gold and silver mines in the world.

The Toronto-based company is enjoying a pretty good start to the financial year.

In May, Kinross released its results for the three months ended March 31 and asserts that it is on track to produce about 1.92 million gold-equivalent oz. this year.

First-quarter revenue totaled US$330.2 million, up 34% over the first quarter a year earlier. The average realized gold price came in at US$929 per oz. sold, significantly higher than the average realized gold price of US$650 oz. recorded in the first quarter of 2007.

Based on reported cost of sales per gold-equivalent oz. of US$472, Kinross’ margin per oz. sold was US$457 in the first quarter, compared with US$322 for the first quarter 2007, an increase of 42%.

Net earnings for the quarter reached US$70.9 million, or $0.12 per share, compared with net earnings of US$68.5 million, or $0.16 per share, for the same period last year.