#BMO: #Kinross #Gold: Development of Fruta del Norte Ceased

Kinross announced today that it would not proceed with the development of the 100%-owned Fruta del Norte (FDN) project in Ecuador, after being unable to reach an agreement with the Ecuadorian government following more than two years of negotiations.

Development of Fruta del Norte Ceased

 

 

 

Impact

 

Potentially Positive

 

 

 

Details & Analysis

 

Kinross announced today that it would not proceed with the development of the 100%-owned Fruta del Norte (FDN) project in Ecuador, after being unable to reach an agreement with the Ecuadorian government following more than two years of negotiations. BMO Research assumptions for FDN's development were already tentative, with FDN representing ~5.5% of KGC's project NPV10% at spot prices. BMO Research considers the event as potentially positive for Kinross as it introduces savings in capital expenditures of ~US$1.4B over the project's life of mine and strengthens the company's focus on its key assets, including the development of Dvoinoye in H2/13 and the expansion of Tasiast from 2017. The government indicated that it would not support efforts by the company to sale the project or find a new partner, despite the fact that Ecuadorian law permits an extension of the economic evaluation phase for up to 18 months (beyond the Aug'13 deadline). Therefore, on August 1, 2013, the entire FDN mineral resource should return to the government, triggering a write-down of ~US$720M that will be impacting Q2/13 results; including a ~US$700M non-cash charge against the net carrying value and ~US$20M for accrued severance and closure costs. Kinross is trading at 2.0x estimated NPV (10% discount rate, spot prices), compared to 1.8x for the senior producers average