VANCOUVER — Canadian producer Kinross Gold (TSX: K; NYSE: KGC) has outlined a path forward for two gold operations that it hopes will grow the company over the next decade.
On Sept. 18, the company approved US$1 billion in brownfield capital expenses at its Tasiast gold asset in Mauritania and Round Mountain gold mine in Nevada. Kinross is proceeding with the expansions based on concurrently released feasibility studies.
Kinross president and CEO J. Paul Rollinson said during a conference call that both projects can be financed via existing liquidity and operating cash flow.
The company reported cash and equivalents of US$1.1 billion — alongside US$1.4 billion in available credit — at the end of June.
Kinross outlined a US$1.5-billion, two-phase plan for Tasiast last year. The strategy includes an initial 12,000-tonne-per-day expansion, and a second phase that would boost the mining rate to 30,000 tonnes per day.
The company has spent the past few years studying the optimal milling rate for the deposit, which hosts proven and probable reserves of 129 million tonnes grading 1.9 grams gold per tonne for 8 million contained oz. gold. Tasiast also hosts measured and indicated resources of 72 million tonnes of 1.4 grams gold for 3.1 million contained oz. gold.
“We’ve always known that Tasiast is a world-class orebody. The focus has really been on finding the best mill configuration to realize that potential,” Rollinson said.
“The phase-two design is all about adding horsepower to the back end of the mill. The improved economics have been largely driven by lower upfront capital, higher annual production over the first five years, and operational efficiency gains we’ve achieved at the mine.”
The approved plan requires US$590 million in upfront capital. The company will replace Tasiast’s twin ball mills and add leaching, thickening and refinery capacity. Kinross will also develop its mining fleet and a power plant to service the 30,000-tonne-per-day mill expansion.
The investment could boost average annual production to 634,000 oz. gold, at all-in sustaining costs of US$720 per oz., starting in 2020. The mine plan estimates an eight-year operation. Tasiast produced 175,000 oz. gold in 2016, with production costs of sales pegged at US$1,061 per ounce.
Assuming a US$1,200 per oz. gold price, the phase-two project carries a 24% internal rate of return (IRR) and a US$1.4-billion, after-tax net present value (NPV) at a 5% discount rate. Construction on the Tasiast expansion could begin in early 2018.
Scotia Capital analyst Tanya Jakusconek has a “sector perform” rating on Kinross and a one-year, US$4.75-per-share price target.
She notes that the updated life-of-mine plan at Tasiast “benefits from a smoother production profile and slower [lower-risk] ramp-up.” Jakusconek adds that the Tasiast Sud project could “improve upon the production profile in the medium-term by adding higher production.”
Round Mountain, Nevada
Meanwhile, Kinross also approved an expansion at its Round Mountain gold mine in Nye County, Nev., called “Phase W.”
The US$445-million project involves a pit layback, a new carbon-in-column plant and heap-leach pad, additions to the mining fleet and equipment, and relocation of existing infrastructure.
The company set the stage for the expansion when it picked up the other 50% stake in Round Mountain from Barrick Gold (TSX: ABX; NYSE: ABX) for US$610 million in cash in early 2016. Kinross later infill drilled 35,000 metres at the project.
Round Mountain now hosts proven and probable reserves of 57 million tonnes grading 0.7 gram gold for 1.3 million contained oz., and measured and indicated resources of 76 million tonnes averaging 0.8 gram gold for 1.9 million contained ounces.
Management noted the company has upgraded 1.3 million oz. gold to measured and indicated resources — and added 1.7 million oz. to inferred mineral resources — through “geologic modelling, drilling and re-engineering of the Phase W project.”
“We’ve long known that mineralization at depth and to the west of the pit at Round Mountain, but the economics of that next layback proved to be a challenge,” Rollinson said.
“We’ve addressed the development in three key ways, including: driving the cost structure lower in terms of mining and processing; increasing our understanding of the orebody by effectively rebuilding the geological model; and, finally, optimizing the mine design and scheduling.”
Assuming a US$1,200 oz. gold price, the company’s Round Mountain expansion carries a 13% IRR and US$135 million NPV. The nine-year mine plan would produce 253,000 oz. gold annually at all-in sustaining costs of US$900 per ounce.
Kinross expects to complete the construction and relocation of infrastructure by mid-2019, with initial “low-grade” Phase W ore available thereafter.
“We view these two projects positively chiefly because they significantly improve [Kinross’] mine life [and] production profile — a key investor concern,” Jakusconek said. “We estimate that [the company] can maintain production at or above [2 million oz. gold per year] until about 2024, with its approved pipeline of projects alone.”
Shares of Kinross have gained nearly 30% in 2017, en route to a $5.55 close at press time. The company has traded within a 52-week range of $3.87 to $6.29, and has 1.3 billion shares outstanding for a $6.9-billion market capitalization.