Kinross Gold (NYSE:KGC)
This article updates my preceding article on Kinross Gold, published on May 13, 2015, about the 1Q'16 results.
On June 20, 2016, the company indicated the following:
Mining and processing operations at its Tasiast mine in Mauritania have been temporarily suspended. As a result of the Mauritanian Ministry of Labor's decision on June 17, 2016 to prohibit certain expatriate employees from working at site due to allegations of invalid work permits, the Company could not continue to fully operate the site in a safe and environmentally responsible manner.
The Company has taken all steps necessary to ensure that its work permits are in good standing and valid under Mauritanian law and to comply with the requisite formalities including the filing of all requests and applications in accordance with the stipulated timeframes.
The Company understands that a number of other institutions and companies in Mauritania are presently experiencing similar work permit issues with the Ministry of Labor.
Discussions with the government of Mauritania to resolve the issue are ongoing. The Company does not expect this issue to affect development of the Tasiast Phase One expansion.
The Company continues to be committed to increasing the number of local workers who have the necessary skills and experience to work at Tasiast, which is consistent with Kinross practice at all its operations. Currently, approximately 88% of employees at Tasiast are Mauritanian nationals.
The Tasiast Mine and Kinross Gold.
1 - Production per mine and per Quarter from my preceding article.
|Kettle River - Buckhorn||28,312||19,301||24,222||29,580||24,265|
|Americas - 58.95%||407,912||326,391||379,290||352,168||328,707|
|Russia - 27.8%||192,450||191,308||190,366||191,160||185,729|
|West Africa - 13.25%||91,548||106,017||111,223||110,570||121,924|
Production of gold of the Tasiast mine represents 6.8% of the total production of Kinross Gold.
The Tasiast mine is an open-pit operation located in northwestern Mauritania, approximately 300 kilometres north of the capital Nouakchott. Tasiast processes ore via an 8,000 tonne per day mill and dump leach. Work continues on enhancing the performance of the existing mill and optimizing the operation.
On March 30, 2016, Kinross announced that it will be proceeding with Phase One of the Tasiast expansion that is expected to increase mill throughput capacity from the current 8,000 t/d to 12,000 t/d, significantly reducing operating costs and increasing production.
Phase One is expected to reach full production by the end of Q1 2018. Kinross also announced details of a pre-feasibility study for a Phase Two expansion based on installing additional incremental throughput of 18,000 t/d for a total combined capacity of 30,000 t/d, which is expected to further reduce costs and increase production.
The 2015 Proven and Probable reserves are 8,219 K Oz.
M. Warwick Morley-Jepson, COO, said in the conference call:
Turning now to West Africa, Tasiast had a strong quarter. Continuous improvement initiatives which are focused on blasting techniques to improve fragmentation of the ore, as well as adjustments to the crushing and grinding circuits have all contributed to a significant improvement in throughput. While the heap is performing well, overall production is down due to lower mill grades. We expect mill grades to recover to approximately 2.5 grams per ton by the end of the year.
This news is a slight setback, but not alarming. It is a minor incident that will not affect the Phase one, at first glance. However, it is another reminder that West Africa is not considered as a "safe" place and the risk of business disruption is significantly higher than doing business in Canada or the USA, for example.
Production has been interrupted starting June 17 and the clock is ticking. Thus, we can expect a lower production for 2Q'16 at roughly 750K Oz which is negligible.
As a reminder, KGC expects $160 million in CapEx for the Tasiast Phase I, which will increase 2016 CapEx to $755 million.
M. Tony Giardini, CFO, said:
Based on a $1,200 gold price, we expect to meet these capital requirements and finish 2016 with cash and cash equivalents of approximately $700 million on the balance sheet.
Hedging fuel for the Tasiast Phase I, as a precaution.
The company decided to hedge the fuel for the Tasiast project at $46 until April 2019, which is a prudent move, in my opinion.
In my preceding article I said:
However, I am not on the super bullish side yet, and believe the $1,300/Oz may be a strong resistance. I will need a more convincing trend to alter my mind...
That being said, I recommend to take at least 25% profit off the table and turn it into cash. Then, you can sit patiently with your remaining position and wait for what will happen the following few months.
I still share the same opinion, and I believe honestly that KGC may eventually "correct," if the "out" Brexit does not materialize. A gold sell off is likely, which will affect significantly the company stock. We may see KGC going down quickly under $4.
On the other hand, if the UK decides to cut the ties with the European Union the situation will be totally reversed and KGC will get a potential boost.
Note: Do not forget to follow me on KGC and get updated regularly. Thank you.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am trading KGC