Kinross Gold Making Something Out of Nothing in Ecuador

A once-lucrative project may still yield some riches for the gold miner.

Jun 3, 2014 at 4:26PM


Fruta del Norte, Ecuador. Source: Kinross Gold.

A glimmer of hope may shine through yet on the Ecuadorian Fruta del Norte project Kinross Gold (NYSE:KGC) was forced to walk away from last year.  Bloomberg News reported the government may renew the miner's rights to the concession, giving Kinross the opportunity to sell the $1.2 billion project (bought in 2009 through the acquisition of Aurelian Resources) and recoup some of its losses. Kinross reportedly hopes to realize about $300 million from the sale.

Fruta del Norte was once hailed as one of the world's biggest gold discoveries, but rapacious government tax policies all but killed all hope Kinross could see any of the riches from the site. The mine is estimated to hold 6.7 million ounces of gold in proven and probable reserves and 9 million ounces of silver. Additionally, there are measured and indicated 67,000 ounces of gold resources and 1.412 million ounces of silver. Kinross had originally planned to produce some 400,000 ounces of gold annually by this year.

However, following Ecudaor's passage of a tax that would seize 70% of all profit above a negotiated base price for the metals mined, Kinross said it had little choice but to abandon the project. The government wouldn't budge on its stance, wouldn't let the miner sell the mine, and refused to extend its concession. While Ecuador did carve out exceptions for small and medium-sized miners that wouldn't have to sign an exploitation contract with the government (triggering the windfall profits tax, but only so long as they stay below certain thresholds), it still requires them to all give the government 50.1% of the earnings from their projects.

Kinross' concession at Fruta del Norte expired last August, but Ecuador's president has the authority to extend it for an additional 18 months. Bloomberg said the miner has been negotiating with the government to allow it to salvage something from the investment.

Four companies are rumored to be interested in the project, including China's Junefield Mineral Resources, already a concessionaire in Ecuador, and Codelco, Chile's government-owned copper miner, which also has mining concessions in the country in partnership with Ecuador's own Enami.

Shares of Kinross Gold have lost 40% of their value since the company announced last June it was abandoning the project, compared to a 10% drop in the price of gold in that time. But's not just Fruta del Norte that is weighing on the miner. Before that it wrote down most of its $7.1 billion cost and laid off hundreds of workers at its Tasiast gold mine in Mauritania.

It is also trying not to upset the boat in Russia, where one-fifth of its production is realized, amid the diplomatic crisis that followed the Putin government's annexation of Crimea from Ukraine. Canada, where Kinross is headqurtered, has urged businesses to avoid lending moral support to Russian President Vladimir Putin by avoiding major event in the country. Kinross, however, was in attendance at an economic summit in St. Petersburg last week, though it likely had little choice.

Kinross' Kupol mine contributed 21% of its total 2013 production -- 550,188 ounces of gold equivalent. It contributed nearly 30% in the first quarter. No other single project produces as much as the Russian mine does; only the Brazilian Paracatu project in Minas Gerais came close at 500,380 ounces last year.

With all-in sustaining costs of of just $1,001 per ounce, and the likelihood that will drop further into its targeted range of $950 to $1,050 per ounce next quarter as the timing of sales smooths out the bumps, Kinross Gold remains a solid miner. And since the markets had largely written off the full value of Fruta del Norte, salvaging something from the wreckage should boost its financial position and perhaps even its stock, allowing investors to get something from nothing.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information