Kinross Gold Corporation (TSX: K) (NYSE: KGC) is pleased to announce that it is proceeding with the Phase Two expansion of its Tasiast mine in Mauritania, which is expected to transform Tasiast into a large, world-class operation, with low costs, and a long mine life that is expected to generate significant cash flow.
Phase Two is expected to increase mill capacity to 30,000 tonnes per day (t/d) to produce an average of approximately 812,000 gold ounces (Au oz.) per year for the first five years, at an average production cost of sales of $440 per Au oz. and all-in sustaining cost of $655 per Au oz. The project is expected to generate strong free cash flow of $2.2 billion over the life of mine. Initial construction for Phase Two is expected to begin in early 2018, with expected initial plant and infrastructure capital costs of approximately $590 million. Commercial production is expected to begin in Q3 2020.
Tasiast Phase Two Feasibility Study Highlights | ||
Metric | Combined Phase One and Phase Two estimates | |
Throughput capacity (t/d) | 30,000 | |
Average annual production (Au oz.) (2020 – 2024) | 812,000 | |
All-in sustaining cost(1) (per oz.) (2020 – 2024) | $655 | |
Production cost of sales (per oz.) (2020 – 2024) | $440 | |
Net present value(2) (NPV) (billion) | $1.43 | |
Cash flow (billion) (2018 – 2029) | $2.2 | |
Metric | Phase Two standalone | |
Initial capital expenditures (million) | $590 | |
Internal rate of return(3) (IRR) | 24% |
*Based on a $1,200 per ounce gold price assumption and $55/bbl oil price assumption. |
The Company is also pleased to announce its intent to proceed with the Round Mountain Phase W project in Nevada, pending completion of the permitting process, which is proceeding as planned. Phase W is expected to extend mining by five years and increase life-of-mine production by 1.5 million Au oz. at one of Kinross’ top performing mines located in one of the best mining jurisdictions in the world.
Round Mountain Phase W Feasibility Study Highlights | ||
Metric | Phase W (incremental) estimates(4) | |
Life of mine production (million Au oz.) | 1.5 | |
Initial plant and infrastructure capital costs (million) | $230 | |
Capitalized stripping (million) (2018-2020) | $213 | |
Internal rate of return(3) (IRR) | 13% | |
Net present value(2) (NPV) (million) | $135 | |
Cash flow (million) | $265 |
*Based on a $1,200 per ounce gold price assumption and $55/bbl oil price assumption. |
(1) Throughout this news release, forecast site-level all-in sustaining cost excludes corporate overhead costs. This is a non-GAAP measure and is not defined under IFRS. Refer to “Reconciliation of non-GAAP financial measures” section in the Company’s Q2 2017 MD&A. | |
(2) Throughout this news release, calculated based on a 5% discount rate from January 1, 2018 and after tax. | |
(3) Throughout this news release, calculated January 1, 2018 forward. | |
(4) Incremental to pre-Phase W mine plan and estimated mineral reserves. | |
Kinross expects to finance both projects with its strong balance sheet and existing liquidity, and operating cash flows. As of June 30, 2017, Kinross had cash and cash equivalents of $1,061.3 million, and available credit of $1,433.1 million, for total liquidity of approximately $2.5 billion. Kinross also has no debt maturities prior to 2021. Maintaining balance sheet strength and financial flexibility continue to be top priorities as the Company develops both projects.
The Phase Two and Phase W feasibility studies have been reviewed by third-party independent reviewers and were found to be consistent with industry best practices.
CEO commentary
“Our decision to proceed with the Tasiast Phase Two expansion underscores our determination to realize the potential of this world-class asset and generate significant value for our shareholders. Our continued focus on financial discipline and technical excellence has resulted in lower capital requirements than originally forecast, which would materially improve project IRR and NPV.
“With Phase Two, Tasiast’s annual production is expected to increase to more than 800,000 gold ounces per year for the first five years and significantly reduce costs. This strong improvement in Tasiast’s performance is expected to positively impact overall company performance metrics, strengthening our production profile and increasing cash flow.
“We have applied the same financial and technical rigour to the Phase W expansion at Round Mountain. Lower operating costs, combined with an optimized mine plan, have contributed to a further de-risking of the project and improved returns. Phase W is expected to add five years of mining at one of our best performing operations.
“We are delivering on our strategy while opening a new chapter as we invest in our long-term future growth. In short, this is great news for our shareholders.”
Tasiast Phase Two overview
The Phase Two feasibility study contemplates installing additional mill throughput of 18,000 t/d to the Phase One project’s 12,000 t/d capacity for a total combined capacity of 30,000 t/d.
Initial plant and infrastructure capital costs for the additional 18,000 t/d expansion are forecast to be $590 million, which is lower than the pre-feasibility estimate of $620 million. The combined Phase One and Phase Two non-sustaining capitalized stripping is expected to be $370 million from 2018 through the first half of 2020.
The Phase Two project is expected to generate significant positive economic benefits for Mauritania and its people through additional taxes, duties, wages and locally supplied goods and services. The Company is appreciative of the support of the Government of Mauritania during its seven years of operation in the country, and it continues to maintain a cooperative and constructive relationship with the Government and other local stakeholders. Major permitting for the Phase Two expansion has been completed.
“We support the Kinross decision to proceed with the Tasiast Phase Two expansion and the additional investment and long-term benefits the project will bring to the country and our people,” said Mauritania’s Minister of Petroleum, Energy & Mines Mohamed Abdel Vetah.
The completed Phase Two feasibility study reaffirms the previous pre-feasibility study results and has factored in recent improvements at Tasiast — including productivity improvements, lower input prices and increased throughput at the existing mill — to increase confidence in the feasibility study assumptions, lower execution risk, and generate a robust internal rate of return.
The expansion would replace the two current ball mills with a new larger ball mill, and add new leaching, thickening and refinery capacity and additions to the mining fleet. A new power plant would be added to power the 30,000 t/d mill, which is forecast to have an average production of approximately 812,000 Au oz. per year for its first five years of mine life (2020-2024), with a forecast cumulative gold production of 6.3 million Au oz. from 2020 to 2029. Operational metrics for the Phase Two expansion can be found in the table below.
Tasiast Phase Two 30,000 t/d Expansion* | ||||
Timeline | Operational metric | Estimate | ||
2020-2024 (First five years of mining Phase Two operation) |
Average annual production (Au oz.) | 812,000 | ||
Production cost of sales (per Au oz.) | $440 | |||
All-in sustaining costs(1) (per Au oz.) | $655 | |||
Average CIL grade processed (g/t) | 2.50 | |||
Strip ratio | 6.4 | |||
Average processing cost (per tonne) | $14.50 | |||
Average mining cost (per tonne)** | $2.05 | |||
Total tonnes mined (tonnes) | 438,400,000 | |||
2025-2029 (Remaining life of mine) |
Average annual production (Au oz.) | 457,000 | ||
Production cost of sales (per Au oz.) | $680 | |||
All-in sustaining costs(1) (per Au oz.) | $835 | |||
Average CIL grade processed (g/t) | 1.45 | |||
Strip ratio | 4.8 | |||
Average processing cost (per tonne) | $14.30 | |||
Average mining cost (per tonne)** | $2.75 | |||
Total tonnes mined (tonnes) | 141,000,000 | |||
2020-2029 (Life of Project) |
Average annual production (Au oz.) | 634,000 | ||
Production cost of sales (per Au oz.) | $530 | |||
All-in sustaining costs(1) (per Au oz.) | $720 | |||
Average CIL grade processed (g/t) | 1.95 | |||
Average recovery rate | 93% | |||
Strip ratio | 5.9 | |||
Average processing cost (per tonne) | $14.40 | |||
Average mining cost (per tonne)** | $2.25 | |||
Total tonnes mined (tonnes) | 579,300,000 |
*Based on a $1,200 per ounce gold price assumption and $55/bbl oil price assumption and combined Phase One and Phase Two expansion. |
**Includes re-handle costs. |
Based on an assumed gold price of $1,200/oz. and oil price of $55/bbl, the Phase Two expansion has an estimated incremental IRR of 24%, and the combined two-phased expansion has an NPV of $1.43 billion (after tax and unlevered, from January 1, 2018 forward). The two-phased expansion is expected to generate $2.2 billion in free cash flow after tax over the life of mine.
With the go-ahead decision for Phase Two, a project team has been established and advanced engineering has begun. Procurement of critical work equipment packages is advancing, as the construction period is expected to commence by early 2018, with Phase Two commercial production expected in Q3 2020.
Forecast Phase Two Initial Plant and Infrastructure Capital Costs(2) | ($ millions) |
Processing plant | 137 |
Power plant | 76 |
Water supply | 50 |
Mining fleet | 49 |
EPCM | 27 |
Indirect, owner’s cost and taxes | 120 |
Contingency | 79 |
Miscellaneous | 52 |
Total | 590 |
Tasiast Phase One update
The Tasiast Phase One project continues to progress well, being on time and on budget, with full commercial production expected in Q2 2018. Plant construction is now two-thirds complete. The SAG mill is now in place and work has begun on the installation of its gearless motor drive. Mechanical installations at the crusher, conveyor, stockpile and in the existing plant are proceeding well. The oxygen plant has been commissioned and is supporting the mine’s current production, and the new tailings storage facility is expected to be operational shortly.
Round Mountain Phase W overview
The Round Mountain Phase W feasibility study contemplates a layback of the current pit, construction of a new Carbon in Column (CIC) plant and heap leach pad, additions to the mining fleet and equipment, and relocation of some existing infrastructure. Stripping of Phase W ore is expected to begin in early 2018, pending the permitting process, which is proceeding on schedule. Construction and relocation of infrastructure is expected to be completed by Q2 2019, and initial low grade Phase W ore to be encountered in mid-2019.
Phase W is expected to add 1.5 million Au oz. to the life of mine plan and generate an incremental IRR of 13% and incremental NPV of $135 million based on a $1,200/oz. gold price and $55/bbl oil price (after tax and unlevered, from January 1, 2018 forward). Phase W is expected to generate incremental cash flow of $265 million, extend mining by five years from 2020 to 2024, and sustain the operation’s annual production at an average of approximately 341,000 Au oz. through 2024, at an average cost of sales of $765 per Au oz. The initial capital costs are forecast to be $230 million, plus incremental non-sustaining capitalized stripping of $215 million (2018-2020). Life of mine sustaining capital is expected to be $135 million.
The Phase W feasibility study has optimized the project plan by finding efficiencies to lower the cost structure. First, the operational team lowered mining, processing and G&A costs at the current operation through continuous improvement initiatives, directly benefitting the project mine plan. Second, after the Company acquired the 50% of Round Mountain it did not already own, the project team completed approximately 115,000 feet of infill, metallurgical and geotechnical drilling and rebuilt the Phase W geology model based on drilling results and historical production, substantially increasing the team’s understanding of the deposit. Third, through mine plan optimization and geotechnical analysis, a larger mineral inventory, now approximately 2.0 million gold ounces compared with 1.3 million gold ounces in the 2016 scoping study, was included in the project. This increase includes higher grade ounces at the bottom of the pit.
With the go-ahead decision for Phase W, procurement activities for long lead items and mining equipment have commenced, along with advanced engineering. Additional state and federal permitting for the project is required and is proceeding as planned.
Round Mountain Phase W Expansion* | |||
Timeline | Operational metric | Combined estimate (current mine plan + Phase W) |
|
2018 – 2024** (Mining) |
Average annual production (Au oz.) | 341,000 | |
Production cost of sales (per Au eq. oz.) | $765 | ||
All-in sustaining costs(1) (per Au eq. oz.) | $905 | ||
Average grade processed (g/t) | 0.65 | ||
Strip ratio | 2.9 | ||
Average processing cost (per tonne) | $4.60 | ||
Average mining cost (per tonne) | $2.00 | ||
2025 – 2027 (Stockpile Milling/Leaching) |
Average annual production (Au oz.) | 46,000 | |
Production cost of sales (per Au eq. oz.) | $720 | ||
All-in sustaining costs(1) (per Au eq. oz.) | $785 | ||
Average grade processed (g/t) | 0.46 | ||
Strip ratio | N/A | ||
Average processing cost (per tonne) | $14.70 | ||
Average re-handle cost (per tonne) | $1.80 | ||
2018 – 2027 (Life of Project) |
Average annual production (Au oz.) | 253,000 | |
Production cost of sales (per Au eq. oz.) | $765 | ||
All-in sustaining costs(1) (per Au eq. oz.) | $900 | ||
Average grade processed (g/t) | 0.65 | ||
Strip ratio | 2.9 | ||
Average processing cost (per tonne) | $4.80 | ||
Average mining cost (per tonne) | $2.00 |
*Based on a $1,200 per ounce gold price assumption and $55/bbl oil price assumption. |
**Includes years with large variances from the forecast average of up to +/-150 koz.
|
Round Mountain Phase W Expansion* | |
Operational metric | Incremental Phase W estimate |
Life of mine production (million Au oz.) | 1.5 |
Life of mine ore processed (million tonnes) | 77.6 |
Average grade processed (g/t) | 0.8 |
Strip ratio | 4.0 |
Initial plant and infrastructure capital costs (million) | $230 |
Capitalized stripping (million) | $215 |
Internal rate of return(3) (IRR) | 13% |
Net present value(2) (NPV) (million) | $135 |
*Based on a $1,200 per ounce gold price assumption and $55/bbl oil price assumption.
|
Forecast Phase W Capital Costs2 | ($ millions) |
Mining fleet | 75 |
Infrastructure | 65 |
Heap leach pad | 21 |
Process facilities | 17 |
Tailings | 9 |
Indirect, owner’s cost, and taxes | 18 |
Contingency | 27 |
Total | 230 |
Gold price sensitivity estimates
Tasaist Phase Two Expansion (30,000 t/d) Average Gold Price |
||||||||
Financial Metric | $1,100/oz. | $1,200/oz. | $1,300/oz. | $1,400/oz. | ||||
IRR3 (standalone) | 19% | 24% | 28% | 31% | ||||
NPV2 (combined Phase One and Phase Two) | $977 million | $1.43 billion | $1.83 billion | $2.22 billion | ||||
Round Mountain Phase W Project (incremental) Average Gold Price |
||||||||
Financial Metric | $1,100/oz. | $1,200/oz. | $1,300/oz. | $1,400/oz. | ||||
IRR3 | 7% | 13% | 17% | 20% | ||||
NPV2 | $31 million | $135 million | $216 million | $295 million | ||||
Oil price sensitivity estimates
Tasaist Phase Two Expansion (30,000 t/d) Oil Price |
||||||||||
Financial Metric | $45/bbl | $50/bbl | $55/bbl | $60/bbl | $65/bbl | |||||
IRR3 (standalone) | 24.9% | 24.6% | 24.2% | 23.9% | 23.5% | |||||
NPV2 (combined Phase One and Phase Two) | $1.49 billion | $1.46 billion | $1.43 billion | $1.39 billion | $1.36 billion | |||||
Round Mountain Phase W Project (incremental) Oil Price |
||||||||
Financial Metric | $45/bbl | $55/bbl | $60/bbl | $65/bbl | ||||
IRR3 | 14.1% | 12.7% | 12.0% | 11.3% | ||||
NPV2 | $159 million | $135 million | $123 million | $111 million | ||||
Mineral reserves and mineral resource estimates5
As a result of the Phase W feasibility study, estimated proven and probable mineral reserves at Round Mountain increased from 1.3 million Au oz. (as of December 31, 2016) to 2.8 million Au oz. This incorporates mining depletion of approximately 400,000 Au oz. from January 1, 2017 to July 31, 2017. The estimated mineral resource decreased from approximately 3.8 million Au oz. to 3.7 million Au oz. This change is the net of the 2.0 million Au oz. that were converted from mineral resources to mineral reserves offset by the addition of the 1.9 million Au oz. of new mineral resources.
Round Mountain Proven and Probable Mineral Reserves6 (Closing Balance July 31, 2017) |
|||
Tonnes (kt) |
Grade (Au g/t) |
Ounces (Au koz) |
|
Proven | 31,173 | 0.60 | 599 |
Probable | 92,964 | 0.73 | 2,197 |
Total | 124,137 | 0.70 | 2,796 |
Round Mountain Measured and Indicated Mineral Resources7 (Closing Balance July 31, 2017) |
|||
Tonnes (kt) |
Grade (Au g/t) |
Ounces (Au koz) |
|
Measured | 598 | 0.50 | 11 |
Indicated | 85,881 | 0.81 | 1,958 |
Total | 86,478 | 0.71 | 1,969 |
Round Mountain Inferred Mineral Resources (Closing Balance July 31, 2017) |
|||
Tonnes (kt) |
Grade (Au g/t) |
Ounces (Au koz) |
|
Inferred | 70,132 | 0.75 | 1,700 |
(5) These updated estimates are different from those reported in the 2016 fourth-quarter and year-end results news release dated February 15, 2017. For further information and assumptions see the Company’s Annual Information Form dated March 31, 2017, available at www.kinross.com and under the Company’s profile on SEDAR (www.sedar.com). | |
(6) Proven mineral reserve estimates include the reserve stockpile. | |
(7) Measured mineral resource estimates include the resource stockpile. | |
About Kinross Gold Corporation
Kinross is a Canadian-based senior gold mining company with mines and projects in the United States, Brazil, Russia, Mauritania, Chile and Ghana. Our focus is on delivering value based on the core principles of operational excellence, balance sheet strength, disciplined growth and responsible mining.
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