Kinross bids adieu to diamonds

While most Western miners cringe at the thought of investing in mineral projects in Russia, Kinross Gold continues to be an exception to the rule. 

• Kinross has announced it intends to boost its stake in the Chukotka Mining and Geological Co. – owner of the Kupol high-grade, gold-silver mine and Kupol East-West exploration licences in Russia’s Far East – to 100% from the current 75%. Kinross has received the Russian government’s approval to negotiate with the Chukotka regional government, which owns the remaining 25%. Kinross picked up its initial 75% in Kupol in February 2007 with its acquisition of Bema Gold for US$3.1 billion.

The combined open pit and underground operation at Kupol recently produced its 2 millionth oz. of gold and 20 millionth oz. of silver, having produced its first ounce only in May 2008. The mine produced 739,000 gold-eq. oz. in 2010, and ended the year with reserves of 3.3 million oz. gold and 42 million oz. silver.

Kinross will fund the Kupol top-up in part with the $100 million in proceeds from the sale of its 8.5% equity interest in Harry Winston Diamond, consisting of 7.1 million shares. Last August, Kinross completed the sale of its former 22.5% interest in the partnership holding Harry Winston’s 40% interest in the Diavik Diamond Mines joint venture to Harry Winston for US$50 million cash, the 7.1 million Harry Winston shares, and a note payable in the amount of US$70 million maturing 12 months from the date of the sale.

To make up the rest of the Kupol bill, Kinross says it will tap into a non-recourse debt facility of about US$200 million, with Export Development Canada and a group of commercial banks having already shown interest in participating.

Kinross is winding up its short but very profitable foray into the diamond sector, after having tripled its money in 16 months. Kinross pounced on a distressed Harry Winston in March 2009, paying $104.4 million for the above-mentioned 22.5% partnership interest, and $45.6 million, or $3 per share, for a 19.9% direct stake in Harry Winston that was later sold off at $13.10 per share.

• While Napoleon said that an army marches on its stomach, so too do miners haul ore out of the ground on their bellies. That point was driven home to Agnico-Eagle Mines on March 10 at its new Meadowbank gold mine in Nunavut, when the kitchen and associated facilities burnt down, with no one injured.

Agnico reported in late March that since the fire, the mine has been “operating with a substantially reduced workforce at a reduced production rate” which will impact full-year gold production numbers.

With the small staffing levels, miners have been running low-grade stockpiled ore through the mill, and the company doesn’t expect to return to normal staffing of 450 people until the end of April. Temporary kitchen facilities are being built, though a permanent replacement kitchen won’t be ready until the fourth quarter of 2011.

Agnico-Eagle now expects full-year production at Meadowbank to be 310,000 oz. gold at total cash costs of about US$700 per oz. with around 60% of this production coming in the second half of the year. This compares to Agnico-Eagle’s previous full-year guidance for Meadowbank of 360,000 oz. gold in 2011 at cash costs of US$600 per oz. Company-wide, cash costs are expected to go up US$25 per oz. into the US$445-US$495-per-oz. range in 2011 owing to the Meadowbank setback.

• With the Japanese earthquake and tsunami, and the U.S.-led bombing of Libya dominating the headlines in late March, it was easy to overlook the worsening political situation in Côte d’Ivoire, which has devolved into a shooting war.

Marching from their stronghold in the country’s north, ground forces allied with internationally recognized Alassane Ouattara, one of the two presidency claimants in Côte d’Ivoire, have now apparently taken more than 10 towns from the army loyal to incumbent Laurent Gbagbo, and they vow to drive on to the political capital Yamoussoukro and the economic capital Abidjan. 

At presstime, fighting is reported to be taking place 40 km north of Abidjan, and up to 1 million Ivoirians have fled their homes in Abidjan alone, according to the United Nations.

Apart from its central role in the cocoa trade, Côte d’Ivoire is a substantial gold producer, with companies such as Newcrest Mining, Randgold Resources, La Mancha Resources, and Cluff Gold owning gold mines in the country. Exploration-stage ventures are being operated by Endeavour Mining, Perseus Mining and Sama Resources.