Kinross Gold Corp., Canada’s third-largest gold miner, will start a feasibility study on expanding its Tasiast mine in Mauritania with a 38,000 ton-per-day mill.
A plant that size will “provide optimum economics” for the mine, Toronto-based Kinross said today in a statement, citing a preliminary study. The company expects to complete the feasibility study in the first quarter of 2014, after which it will decide whether to finish the engineering work and begin construction on the expansion.
“The decision to proceed will be based on a number of considerations, such as energy supply, operating costs, capital costs and of course the gold price,” Chief Executive Officer J. Paul Rollinson said today on a conference call. “We’ve got a lot of gold in the ground and we have a lot of options.”
Kinross acquired Tasiast as part of its C$8 billion ($7.9 billion) purchase of Red Back Mining Inc. in 2010. The company said in February it took a $3.09 billion writedown on the project after it scaled back an expansion plan and mining-industry capital and operating costs increased. Tasiast currently has a processing capacity of 8,000 tons a day, the company said.
Kinross originally planned to build a 60,000-ton-per-day ore-processing mill at Tasiast, and in February said it was no longer considering that option. The company said in August it was studying a 30,000-ton plant.
The project outlined today, with an internal rate of return of about 11 percent and an estimated net present value of $1.1 billion, has “weak economics,” said George Topping, a Toronto-based analyst at Stifel Nicolaus & Co.
“Pressing on with a weak project at this time does not make sense to us,” Topping said in a note. “It would have been better present a plan a defer this project should higher gold prices not materialize.”
The pre-feasibility study announced today showed that under the 30,000-ton scenario, so-called all-in sustaining costs at Tasiast would be $735 an ounce of gold with average annual gold output 830,000 ounces in the first five years of production.
The initial capital cost for the project at that size was estimated at $2.7 billion, Kinross said today. Kinross assumed a gold price of $1,500 an ounce of gold in calculating the project economics and $1,200 for designing the mine pit.
Rollinson, who replaced Tye Burt as Kinross’s CEO in August, is seeking to lower production costs and improve spending discipline. The company forecasts 2013 capital spending will drop to $1.6 billion from $1.92 billion last year.
“The priority for us is balance sheet strength and we are going to keep the balance sheet strong,” Rollinson said today.
Barrick Gold Corp. and Goldcorp Inc. are the largest Canadian gold miners by sales.
Kinross fell 1.3 percent to C$5.49 at the close in Toronto. The shares have dropped 43 percent this year.