A particularly bad quarter for
The company acquired a 100% stake in Lupin on Jan. 31, 2003, as a result of its combination with Echo Bay Mines (part of a 3-way merger among the two companies and TVX Gold), but Kinross has never counted Lupin as a “material property” in its regulatory filings.
During the second quarter, Lupin produced 25,534 oz. gold at a total cash cost of US$409 per oz. For the five months ended June 30, the mine produced 44,318 oz. gold at a total cash cost of US$410 per oz.
Robert Buchan, president and CEO, says costs in the recent quarter were “ridiculously high” and that the company is reviewing all options with respect to the mine’s future. A decision will likely be made this quarter.
Kinross did have some success in lowering operating costs at the mine, but these savings were overwhelmed by a 10% drop in planned tonnage mined, a 15% drop in planned grade, and a rising Canadian loonie. As well, mine geologists are finding that gold mineralization at depth is not as continuous as was once believed.
“Lupin had a poor quarter,” says Scott Caldwell, executive vice-president and chief operating officer. “Going forward, our focus is on how to convert the existing on-site inventory into cash.”
Last year, the mine produced 113,835 oz. gold at a total cash cost of US$330 per oz., and in 2001 it cranked out 139,327 oz. at US$246 per oz.
At Dec. 31, 2002, Lupin held reserves of 1.2 million tonnes grading 8.57 grams gold (332,000 contained ounces) and no material in the resource category. The average cutoff-grade range used was 5.5-8.3 grams gold, and the average process recovery was 93%.
Overall, Kinross posted a second-quarter loss of US$5.2 million (or US2 per share), compared with a $4.3-million loss (US5 per share) in the corresponding period of 2002.
Revenue between the two periods soared to US$157.8 million from US$59.2 million as a result of the merger. The merger also caused attributable gold production to rocket to 470,177 from 204,148 oz.
The average total cash cost per attributable gold-equivalent ounce was US$216 in the second quarter, compared with US$209 a year earlier, while operating cash flow rose to US$20.7 million from US$11.1 million.
“Our second quarter was important for us [because] we had to show numbers that were reflective of a senior,” says Buchan, “and our production and operating costs were reflective of that.
“Looking forward, I’m confident our operations will continue to perform well [as we] focus on the bottom line.”
For 2003, Kinross still expects to meet its production target of 1.7 million oz. gold-equivalent mined at a total cash cost of US$215-220 per oz. With those numbers, Kinross now ranks as Canada’s third-biggest gold miner and the world’s seventh-biggest.
With respect to Kinross’s reserve base, Buchan comments: “We’ve maintained a high exploration budget through the second quarter, and we will maintain that through the third and fourth quarters, based on the encouraging results we’re getting in a number of parts of the organization.”
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