Kinross fights shutdown order at Maricunga mine

VANCOUVER —  Kinross Gold (TSX: K; NYSE; KGC) is preparing to contest a shutdown order issued by Chilean regulators at its Maricunga heap-leach operation, 120 km east of the city of Copiapo. On March 18, the Superintendance for the Environment (SMA) moved to permanently close extraction water wells at the mine after citing “irreparable environmental damage.”

Maricunga sits in Chile’s Atacama, one of the driest regions in the world, which Kinross stated “has suffered from a protracted drought for many years, resulting in a drop in groundwater levels across the region that is unrelated to [operations].” Meanwhile, the SMA indicated that the mine has drained “at least 70 hectares of wetlands located in the Black Lagoon Francisco and Santa Rosa Laguna lake complex.”

The company said that Maricunga is operating normally, though it relies solely on water from the Pantanillo wells, and that it will file an appeal in Santiago via the Environmental Tribunal.

Kinross noted that regulators in Santiago must uphold the order before any closures at the site. The Northern Miner reached out to Louie Diaz, Kinross’ senior manager of corporate communications, who deferred to a press release issued by the company on March 21.

Kinross Gold’s Maricunga gold mine in Chile, which authorities have ordered shut down over environmental concerns. Credit: Kinross Gold

The SMA reported it had reviewed field samples and satellite images from the Maricunga area for the period between 1985 and 2015 in making its decision.

“Given the seriousness of the facts, we have been forced to apply one of the most severe penalties established in the Organic Law of the SMA,” Superintendent of Environment Cristian Franz said in the release. “The company cannot continue drawing water from wells located in the area of ​​Pantanillo, as it has been confirmed that the operation caused irreparable environmental damage to the complex.”

Maricunga could have produced between 220,000 and 240,000 oz. in 2016, or 8% of Kinross’ pre-shutdown annual production guidance.

The mine was one of the company’s highest-cost assets last year, with all-in sustaining costs of US$1,010 per oz.

ironically the operation suffered a nine-week suspension in March 2015 due to heavy rains in the Atacama region.

BMO Capital Markets analyst Andrew Kaip notes that “the impact of a potential suspension of operations at Maricunga is not expected to be material,” and says that the mine represents 1% of BMO Research’s portfolio net present value for Kinross at current metal price assumptions.

Canaccord Genuity analyst Tony Lesiak agrees that Maricunga was “not a meaningful contributor to the company’s [earnings],” and added that the mine was “slated for potential closure at lower gold prices, with another large pre-strip looming.”

Kinross shares has traded in a 52-week range of $1.79 to $4.63 per share, and closed at $4.13 at press time. The company has 1.2 billion shares outstanding for a $5.1-billion market capitalization.

The shutdown order is the second recent  punitive move by the SMA against foreign miners. In early March the agency announced charges against Poland’s KGHM Polska Miedz and Japan’s Sumitomo Metal Mining for environmental infractions at the large Sierra Gorda copper operation.

The Chilean regulator indicated the companies could face fines of up to US$29 million and have operating licences revoked due to emission-control violations, operating an unauthorized tailings dam and impacting wildlife habitat.