Kinross Gold Corporation (TSX:K) (NYSE: KGC) is pleased to announce an agreement with N-Mining Limited to acquire Chulbatkan, a high-quality, heap leach development project with significant upside potential and low relative execution risk, for total fixed consideration of $283 million, including approximately $113 million in cash and approximately $170 million in Kinross shares. In addition, N-Mining will have the right to economic participation equivalent to a 1.5% net smelter return payment and contingent consideration linked to future reserve additions.
Strategic rationale for acquisition:
“Chulbatkan is an exciting high-quality development project with significant upside potential and low relative execution risk located in a country where we have had extensive experience and success, and maintain a strategic and competitive operating advantage,” said J. Paul Rollinson, President and Chief Executive Officer. “This acquisition is an excellent fit for Kinross as it enables us to leverage our expertise as a world-class cold climate heap leach operator. With a large estimated mineral resource, Chulbatkan has the potential to be a significant low-cost, low-strip, high-return operation that will strengthen our longer-term production and cash-flow profile. It is an excellent complement to our existing operations at Kupol and Dvoinoye, both of which remain prospective in their own right.”
For more information on the Chulbatkan project:
Chulbatkan is a high-grade, open-pit, heap leach project that is expected to be a high-return operation with a low strip ratio, attractive costs, significant upside potential and low relative execution risk.
Kinross has completed substantial due diligence on Chulbatkan over the past 16 months, including analysis of eight confirmatory drill holes that showed positive results, and a metallurgical testing program consisting of eight trial leach columns confirming favorable leach characteristics and recoveries. Kinross has conducted several site visits and maintained a strict chain of custody to ensure sample validity during the due diligence process.
The Company has also completed an internal analysis to better understand the project, including building a preliminary block model and mine plan. Based on the analysis and substantial due diligence work, Kinross estimates approximately 3.9 million gold ounces in indicated mineral resources and 80,000 gold ounces in estimated inferred mineral resources for the project.
|Chulbatkan Mineral Resource Estimates|
All figures rounded. Mineral resource estimates are based on an internal block model and assumed a constrained pit using a $1,400 per ounce gold price and cut-off grade of 0.35 g/t.
Preliminary approximate estimates for Chulbatkan include: a mine life of six years; total life of mine production of 1.8 million recovered ounces; a strip ratio of 1.5; all-in sustaining costs in the $550 per ounce range, and; initial project capital expenditures of $500 million. These estimates are based on Kinross’ internal analysis using a preliminary block model and a constrained pit using a $1,200 per ounce gold price2.
The Company expects to commence a comprehensive exploration drill program, and undertake work including core re-logging and updating the geologic model, with a view to updating the project’s resource base and converting estimated mineral resources to estimated mineral reserves. The Company is also planning to complete pre-feasibility and feasibility studies within approximately three years and is targeting a two-year construction period. This initial and preliminary timing is well aligned with the Company’s current project development pipeline, capital priorities and complements existing Kupol and Dvoinoye operations.
The project has exploration and mining licenses in place until the end of 2037, and has existing starter infrastructure, including a base camp, and trial scale pit, non-commissioned ADR plant and heap leach pad.
Chulbatkan’s mineral resource estimate is limited by the extent of drilling, with most holes ending in mineralization. The highly continuous mineralization extends from near surface to an average drilled depth of approximately 300 metres. The Company believes the deposit, which is open along strike and at depth, has the potential for additional high-grade structures within the existing resource and multiple promising satellite targets.
The footprint of the mineral resource estimate currently represents less than 1% of the approximately 120 sq. kilometre under-explored license area, which has multiple, untested high-quality targets. Several structural environments analogous to the Chulbatkan deposit and multiple downstream placer gold occurrences indicate additional hard rock source mineralization may be found within the license area. As well, numerous surface rock samples with grades greater than 1 g/t have been collected outside of the defined resource area.
In August 2018, as part of the due diligence process, drilling of approximately 2,150 metres in eight confirmatory drill holes were completed that showed positive results. Highlights include:
See page five for Explanatory Notes, and page six for the Appendix for Chulbatkan plan and section views and drill hole locations.
Chulbatkan is located in the industrialized district of Khabarovsk Krai, Far East Russia, approximately 15 kilometres southwest of Udinsk, a settlement on the Amgun River and has year-round transportation access. The Company’s regional Magadan office is located approximately equidistant between its Kupol and Dvoinoye operations and Chulbatkan.
The Khabarovsk district has a well-established mining and exploration sector, including: several active producers and numerous operating mines; an existing network of local contractors and suppliers; a trained workforce with strong mining experience and, potential synergies with Kinross’ existing activities in Russia’s Far East region.
Terms of agreement
The transaction, and timing of payments, is expected to maintain the Company’s strong liquidity position through a mix of cash and shares. The total fixed consideration is $283.0 million, including an advanced payment of $3.0 million on signing, followed by a payment of $138.5 million on closing of the acquisition ($84.9 million in Kinross shares and $53.6 million in cash), and $141.5 million due on the first anniversary of closing ($84.9 million in Kinross shares and $56.6 million in cash).
In addition, N-Mining will receive a 1.5% NSR payment on future production from the license area and contingent consideration of $50 per ounce of future proven and probable reserves beyond the first 3.25 million of declared proven and probable ounces. Kinross will retain the right to buy-back 1/3 of the 1.5% NSR payment for $10 million, subject to certain gold price related adjustments, at any time within 24 months from closing. The Kinross shares will be issued on the basis of the 20-day volume-weighted average trading price immediately prior to the relevant issuance.
The transaction is subject to the satisfaction of customary conditions precedent, including regulatory approvals and confirmation of the continued application of regional tax incentives. The transaction is expected to close by early 2020.
Successful Russian operator
Kinross has successfully operated four mines in Russia over the past 24 years, including developing and operating the high-grade, low-cost Kupol and Dvoinoye mines located in the Chukotka region. Kinross completed permitting and development of Kupol in 2008 and Dvoinoye in 2013, both on time and on budget, and has extended mine life at both operations, which is indicative of the Company’s strong operating experience in the country. Kinross continues to prioritize exploration around Kupol and Dvoinoye, with the goal of adding to the sites’ mineral reserve estimates to extend mine life.
In 2018, Kinross spent $231 million on local goods and services providers in Russia, paid $77 million in taxes and royalties to governments, and paid $87 million in wages and benefits to its employees in the country, 98.5% of whom are Russian. In 2018, Kinross also placed at the top of World Wildlife Fund Russia’s ranking of environmental responsibility and transparency among mining companies operating in the country.
Scotiabank Europe plc is acting as financial advisor to the Company, with Dechert LLP acting as legal advisor, on the transaction.
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. Kinross’ focus is on delivering value based on the core principles of operational excellence, balance sheet strength, disciplined growth and responsible mining.
Photos accompanying this announcement are available at:
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