In essence, this is Kinross continuing to de-risk after its failed acquisition spree under Tye Burt, its previous CEO . The Lundins are jumping on the opportunity. No surprise there- they tread where others fear to go, and reap the subsequent rewards.
Kinross Gold in talks to sell Ecuador project to Lundin family
The Globe and Mail
Kinross Gold Corp. is in talks to sell its mothballed gold project in Ecuador in a move that could see the Lundin family develop the deposit, according to people familiar with the matter.
For about a year, Kinross has been trying to exit Ecuador and divest the Fruta del Norte after clashing with the local government on the economic terms of the project.
The Ecuadorean government gave Kinross approval to sell Fruta del Norte last week, one person familiar with the matter said.
Fruta del Norte, also known as FDN, was at one time seen as critical to Kinross’s growth. The company acquired the precious metal deposit when it bought Aurelian Resources for $1.2-billion in 2008.
But after more than two years of negotiations with the Ecuadorean government, Kinross threw in the towel and said it was not going to waste any more capital developing the mine. It recorded a $720-million charge on the asset in 2013 and slashed its gold reserves by a third to reflect the loss of Fruta del Norte.
“We continue to work co-operatively with the Ecuadorean government on our exit from the country and the FDN project,” Kinross spokeswoman Andrea Mandel-Campbell said. “We do not comment on speculation,” she said.
It is unlikely Kinross will recoup much of the $1.2-billion it paid for Aurelian. But analysts said any sale was positive.
“Anything is better than nothing. If they can surface any value that is a positive,” said Pawel Rajszel, analyst with Veritas Investment Research.
It isn’t clear which Lundin entity would acquire Fruta del Norte if a deal is completed, or whether other potential buyers are in the mix. Lukas Lundin and his brother, Ian, run the Lundin Group of Companies, a conglomerate of mining and energy companies that was founded by their father. A spokeswoman for the Lundin Group declined comment.
If Lukas Lundin succeeds in getting his hands on Fruta del Norte, he will face the same obstacles Kinross had in Ecuador. The South American country is considered a risky place for foreign investment and has imposed a hefty tax on mining projects. The left-leaning government, however, said in June it plans to change its mining law and offer tax incentives to attract investors, according to Reuters.
The Fruta del Norte debacle is one in a series of setbacks for Kinross. The company incurred multiple writedowns on its Tasiast mine in Mauritania, erasing most of the $7-billion value it paid to acquire Red Back Mining, which owned the mine, in 2010.
Lukas Lundin has a history of working with Kinross. He was the chairman of Red Back Mining and helped engineer the sale of his company to Kinross while on a ski trip with former Kinross chief executive Tye Burt. Mr. Lundin briefly served as a Kinross board director. The Red Back deal eventually cost Mr. Burt his job.
Although Kinross has slashed costs to conserve capital and deal with the sharp drop in gold prices, the company can’t seem to catch a break. Nearly a third of Kinross's gold production comes from its two mines in Russia, which is locked in a diplomatic row with Canada and other Western countries.
The miner’s exposure to Russia has helped keep the company’s stock at multiyear lows. Its shares are down about 14 per cent so far this year to $4.03 a share at Wednesday’s close. In contrast, Kinross’s peer Goldcorp Inc. has gained about 15 per cent to $27.61.
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