Good thing SSL has nothing in Ecuador
Kinross to "cease development" of Fruta del Norte
2013-06-10 17:12 ET - News Release
Shares issued 1,141,664,089
K Close 2013-06-07 C$ 6.37
Mr. J. Paul Rollinson reports
KINROSS ANNOUNCES IT WILL CEASE DEVELOPMENT OF FRUTA DEL NORTE
Kinross Gold Corp. will not proceed with further development of the Fruta del Norte (FDN) project in Ecuador. The company also informed the government of Ecuador of this decision, and requested its co-operation in ensuring an orderly transition that respects the interests of both parties.
After more than two years of negotiations on exploitation and investment protection agreements for the project, the government of Ecuador and Kinross have been unable to agree on certain key economic and legal terms which balance the interests of all stakeholders. Therefore, despite pending legislative amendments to the mining and tax law regime in Ecuador, Kinross has concluded that it is not in the interests of the company and its shareholders to invest further in developing FDN.
"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 officer J. Paul Rollinson. "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. That said, we respect the government of Ecuador's sovereign authority and its right to determine how its resources are developed," he added.
Although Ecuadorian law permits an extension of the economic evaluation phase of the project for up to 18 months, or the suspension of the commencement of the exploitation phase, either of which would have enabled negotiations to continue beyond the current Aug. 1, 2013, deadline, the government has indicated that it will not agree to such an extension or suspension. Any possible sale of the project is currently subject to the prior approval of the government, and the government has also indicated it will not support efforts by Kinross to solicit a potential new partner, or a buyer. As previously disclosed, when the current economic evaluation phase of the project expires on Aug. 1, 2013, the La Zarza concession, which contains the entire FDN mineral resource, will revert to the government. (1)
The company intends to focus on assisting its employees and its local stakeholders during a transition period as it reduces its level of activities in Ecuador in the coming months. "I want to acknowledge our outstanding team in Ecuador for their dedicated efforts in establishing FDN as a model for responsible mining," Mr. Rollinson said. "I also want to thank our local stakeholders and the communities of Zamora-Chinchipe, including members of the Shuar Federation, who have partnered with us on a wide range of training, business development and community investment initiatives over the past several years as we worked together to advance this project," he added.
Kinross's decision to cease the development of FDN will result in a charge of approximately $720-million in the second quarter. Approximately $700-million of the charge is expected to be non-cash, reflecting the company's entire net carrying value of the FDN project, and approximately $20-million represents accrued severance and closure costs.
(1) The cessation by the company of further investment in and development of the FDN deposit and La Zarza mining concession being consistent with Kinross's current expectations including, without limitation, as related to the reasonable co-operation of the government of Ecuador in ensuring an orderly transition with respect to FDN that respects the interests of both parties; continuing recognition of the company's other remaining mining concessions and other assets, rights, titles and interests in Ecuador; the implementation of Ecuador's mining and investment laws (and prospective amendment to these laws) and related regulations and policies; and compliance with, and the implementation and enforcement of, the Canada-Ecuador Agreement for the Promotion and Reciprocal Protection of Investments; (2) the exchange rate between the Canadian dollar and the U.S. dollar being approximately consistent with current levels; (3) certain price assumptions for gold and silver; (4) prices for diesel, natural gas, fuel oil, electricity and other key supplies being approximately consistent with current levels; (5) production and cost of sales forecasts for the company, and entities in which it now or hereafter directly or indirectly holds an investment, meeting expectations; (6) the accuracy of the current mineral reserve and mineral resource estimates of the company (including but not limited to ore tonnage and ore grade estimates) and any entity in which it now or hereafter directly or indirectly holds an investment; (7) labour and materials costs increasing on a basis consistent with Kinross's current expectations; (8) goodwill and/or asset impairment potential; and (9) access to capital markets being consistent with the company's current expectations.
We seek Safe Harbor.