Kinross Gold Scraps $1.3bn Ecuador Project

June 11, 2013 at 07:53

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Canada’s Kinross Gold Corporation has dealt a blow to Ecuador’s ambitions of attracting more miners, by saying that it was ditching plans for a $1.3bn gold project.

Kinross said it would not proceed with further development of the Fruta del Norte mine. It added that it would incur a $720m charge, $700m of which would be a non-cash item reflecting the company’s “net carrying value” of the project.

“We have said that we will exert strict capital discipline across our company, that we will allocate our capital only to projects which meet our investment criteria, and that we will only enter into agreements that are in the best interests of the company and its shareholders,” said chief executive J. Paul Rollinson.

The Ecuadorean government had refused to renegotiate a plan for a 70 per cent windfall tax on revenue, and had declined to allow a sale of the project or extend the company’s licence beyond an August 1 deadline, Kinross said.

RafaelCorrea, Ecuador’s leftwing president, is pushing for a new law to fast-track mining contracts and investments in the Latin American country.

Ecuador does not yet have a big mining industry but some observers believe the country sits along the same mineral-rich vein that has made mining central to other Andean economies. Ecuador’s mining chamber of commerce values the country’s mineral wealth at $220bn.

Mr Correa has said that the current law “was too strong in some aspects and there were not as many investments as we expected”.

The bill includes reforms that would postpone windfall taxes until a company’s investments are recovered and put a ceiling on royalties. Mining companies pay a minimum of 5 per cent but there is no maximum.

Last year Mr Correa gave the go-ahead to Ecuador’s first large-scale mining project, a $1.4bn deal with China-backed Ecuacorriente at the Mirador copper deposit. The company is now negotiating with the government to sign a deal for the Panantza-San Carlos copper deposit.

However, Kinross said that after two years of negotiations, the economics of the proposed mine at Fruta del Norte did not make sense for shareholders.

“After a great deal of effort to arrive at a mutually agreeable outcome, it is unfortunate that the parties were unable to reach an agreement on FDN which would have met those criteria,” it said.

“That said, we respect the government of Ecuador’s sovereign authority and its right to determine how its resources are developed.”

However, the announcement came as a surprise to the markets given that the reforms were expected to ease Kinross’s concerns.