Kinross Gold Corp., the Canadian miner that took a $720 million charge when it halted a gold project in Ecuador, is in talks to recover part of the investment, five people with knowledge of the negotiations said.
The company, which stopped developing the Fruta del Norte mine last year as Ecuador sought to increase taxes, is looking for about $300 million from the sale of the project, two of the people said, asking not to be named because talks with the government and prospective buyers may not lead to a deal. Shares erased losses to gain for the first time in five days.
Kinross spokeswoman Andrea Mandel-Campbell said May 9 that the Toronto-based company was working with the government on an exit process without giving any details of the discussions. She declined to comment further when contacted yesterday. Ecuador’s Non-Renewable Natural Resources Minister Pedro Merizalde and Strategic Sectors Minister Rafael Poveda didn’t respond to requests for comment made through their assistants.
President Rafael Correa’s government may agree to renew the company’s rights to the concession, which expired on Aug. 1, to remove legal hurdles to the prospective sale, two of the people said. Alternatively, Kinross may just sell data gathered from its prospecting operations, two of the people said.
The government has the discretion to provide an extension of its contract for as long as 18 months beyond the August cutoff, according to the company’s 2012 annual report.
Junefield Mineral Resources Holdings Ltd., the Hong Kong-listed company that already holds three gold concessions in Ecuador, is one of four companies interested in buying the project, three of the people said. Yuedong Xu, Junefield’s Ecuador country manager, declined to comment yesterday on whether the company was in talks to buy the concession.
Kinross, which took control of the project as part of its C$1.2 billion ($1.18 billion) purchase of Aurelian Resources Inc. in 2008, ceased development after failing to agree with the government on economic and legal terms, the company said last year. It also took a $3.09 billion writedown in February 2013 on a mine in Mauritania.
Shares in Kinross rallied from a 1.9 percent drop to close up 1.3 percent at $3.78 in New York. The stock has lost 41 percent in the past year compared with a 23 percent average decline by similar companies tracked by Bloomberg.
“With the market basically assuming zero value for this asset, if they can get something, regardless of what that is, it would be positive,” Adam Graf, a mining analyst at New York-based brokerage Cowen & Co., said today by telephone.
Discussions with Ecuador’s government were hampered by authorities’ “hardline” approach on a proposed 70 percent windfall-profits tax that Kinross wasn’t prepared to accept, Chief Executive Officer J. Paul Rollinson said last year. The company had originally planned to produce about 400,000 ounces of gold annually by this year.
Ecuador’s government halted mining operations in 2008, a year after President Correa took office, suspending projects while Congress drafted new rules giving the state greater control over natural resources. The regulations took effect the following year, requiring companies to renegotiate contracts before they could resume mining.
Fruta del Norte, discovered in 2006, is one of the world’s biggest gold discoveries, containing about 6.7 million ounces of proven and probable gold reserves and 9 million ounces of proven and probable silver reserves, according to Kinross.
Ecuador’s metals deposits may contain more than 39 million ounces of gold, 88.7 million ounces of silver and 8.14 million metric tons of copper, according to the most recent data from the nation’s mining chamber.