Kinross Gold Corporation (TSX:K; NYSE: KGC) (“Kinross”) is pleased
to announce an agreement with N-Mining Limited (“N-Mining”) 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
(NSR) payment and contingent consideration linked to future reserve
additions.
Strategic rationale for
acquisition:
- High-quality
development project with strong upside potential
- Large, high-grade, near-surface resource with potential to
support a low-cost, low-strip, high-return, open-pit, heap leach
operation.
- Estimated indicated resource of approximately 3.9 million
ounces of gold and estimated inferred resource of 80,000 ounces of
gold1.
- Highly continuous mineralization remains open along strike and
at depth with potential for additional high-grade structures within
the resource. Multiple promising satellite targets within the
under-explored ~120 sq. km license.
- Exploration and mining license in place until the end of
2037.
- Leverages operating expertise
- Project’s favourable leach characteristics a clear strategic
fit with Kinross’ world-class, cold climate heap leach expertise,
with features similar to the Company’s Fort Knox mine in
Alaska.
- Builds on existing regional platform
- Expected to strengthen Russia region’s long-term production and
cash flow. Kinross has 24 years of operational success in-country,
having operated four mines, including developing Kupol and
Dvoinoye, two low-cost mines, on budget and on schedule.
- Aligns with project pipeline and capital
priorities
- Expect to conduct a comprehensive exploration program, complete
pre-feasibility and feasibility studies within the next three
years, and targeting a two-year construction period. This initial
timing complements existing Kupol and Dvoinoye operations and
Company’s broader project plans.
- Maintains strong liquidity position through a mix of
cash and shares
- Cash and share transaction, and timing of payments, maintains
Kinross’ strong liquidity.
“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: https://www.kinross.com/files/doc_presentations/2019/0731-Kinross-Chulbatkan-acquisition-presentation.pdf
Chulbatkan
overview
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 |
|
Tonnage(Mt) |
Grade(g/t) |
Ounces (Au koz) |
Indicated Resources |
87 |
1.4 |
3,910 |
Inferred Resources |
3 |
1.0 |
80 |
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:
Hole ID |
From (m) |
To (m) |
Interval (m) |
Grade (Au g/t) |
RKC-1 |
17 |
273 |
259 |
1.8 |
Including |
149 |
237 |
88 |
3.1 |
RKC-2 |
49 |
265 |
216 |
1.5 |
Including |
161 |
216 |
55 |
4.3 |
RKC-3 |
57 |
352 |
295 |
0.8 |
Including |
69 |
128 |
59 |
1.1 |
RKC-4 |
51 |
250 |
199 |
35.0 |
Including |
168 |
220 |
52 |
129.1 |
RKC-5 |
0 |
104 |
104 |
1.5 |
Including |
6 |
58 |
52 |
1.9 |
RKC-6 |
65 |
168 |
103 |
0.7 |
Including |
91 |
131 |
40 |
1.0 |
RKC-7 |
38 |
300 |
262 |
1.4 |
Including |
43 |
85 |
42 |
2.1 |
RKC-8 |
0 |
174 |
174 |
1.2 |
Including |
0 |
106 |
106 |
1.8 |
See page five for Explanatory Notes, and page
six for the Appendix for Chulbatkan plan and section views and
drill hole locations.
Chulbatkan
location
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.
Advisors
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. Kinross maintains listings on the Toronto Stock
Exchange (symbol:K) and the New York Stock Exchange
(symbol:KGC).
Media Contact Louie DiazSenior
Director, Corporate Communicationsphone: 416-369-6469
louie.diaz@kinross.com
Investor Relations ContactTom
Elliott
Senior Vice-President, Investor Relations and Corporate
Development
phone:
416-365-3390
tom.elliott@kinross.com
Cautionary statement on forward-looking
information
All statements, other than statements of
historical fact, contained in this news release, including any
information as to the future financial or operating performance of
Kinross, constitute “forward-looking information” or
“forward-looking statements” within the meaning of certain
securities laws, including the provisions of the Securities Act
(Ontario) and the “safe harbor” provisions under the United States
Private Securities Litigation Reform Act of 1995 and are based on
the expectations, estimates and projections of management as of the
date of this news release, unless otherwise stated. The words
“assumption”, “believe”, “estimate”, “expects”, “explore”,
“favourable”, “potential”, “upside”, or “view” or variations of or
similar such words and phrases or statements that certain actions,
events or results may, could, should or will be achieved, received
or taken, or will occur or result and similar such expressions
identify forward-looking statements. Forward-looking statements
contained in this news release include, but are not limited to,
those under the heading "Strategic rationale for acquisition" and
“Chulbatkan overview”. Forward-looking statements are, necessarily,
based upon a number of estimates and assumptions that, while
considered reasonable by Kinross as of the date of such statements,
are inherently subject to significant business, economic and
competitive uncertainties and contingencies. The estimates and
assumptions of Kinross contained in this news release, which may
prove to be incorrect, include, but are not limited to: (i) that
the parties will complete the acquisition in accordance with, and
on the timeline contemplated by, the terms and conditions of the
relevant agreements, on a basis consistent with our expectations,
including the receipt of all necessary regulatory approvals and
consents; (ii) the accuracy and reliability of the mineral resource
estimates of the project and the company’s analysis thereof being
consistent with expectations (including but not limited to tonnage
and grade estimates) and the benefits to Kinross from the project
and any upside from the project; (iii) the completion, timing and
results, of the planned exploration program and corresponding
pre-feasibility or feasibility studies being consistent with
expectations; (iv) the Company’s economic model, execution risk
analysis, and preliminary mine plan; (v) projected production,
all-in sustaining costs, capital expenditure and stripping
estimates for the project; (vi) the continued availability of
regional tax incentives; (vi) the successful development of the
Chulbatkan project on the timelines anticipated, or at all; (viii)
impacts of the transaction on shareholder dilution and liquidity;
(xi), share price volatility; and (xii) fluctuations in the spot
and forward price of gold, silver, or certain other commodities
(such as, diesel fuel, natural gas, and electricity). In addition,
there are risks and hazards associated with the business of gold
exploration, development and mining, including environmental
hazards, industrial accidents, unusual or unexpected formations,
pressures, cave-ins, flooding and gold bullion losses (and the risk
of inadequate insurance, or the inability to obtain insurance, to
cover these risks). Many of these uncertainties and contingencies
can directly or indirectly affect, and could cause, Kinross' actual
results to differ materially from those expressed or implied in any
forward-looking statements made by, or on behalf of, Kinross,
including but not limited to resulting in an impairment charge on
goodwill and/or assets. There can be no assurance that
forward-looking statements will prove to be accurate, as actual
results and future events could differ materially from those
anticipated in such statements. Forward-looking statements are
provided for the purpose of providing information about
management’s expectations and plans relating to the future. All of
the forward-looking statements made in this news release are
qualified by this cautionary statement and those made in our other
filings with the securities regulators of Canada and the United
States including, but not limited to, the cautionary statements
made in the “Risk Analysis” section of our MD&A for the year
ended December 31, 2018 and the Annual Information Form dated March
29, 2019. These factors are not intended to represent a complete
list of the factors that could affect Kinross. Kinross disclaims
any intention or obligation to update or revise any forward-looking
statements or to explain any material difference between subsequent
actual events and such forward-looking statements, except to the
extent required by applicable law.
The technical information about the Company’s
mineral properties in this presentation has been prepared under the
supervision of Mr. John Sims, an officer of the Company who is a
“qualified person” within the meaning of National Instrument
43-101.
Explanatory Notes – drill hole
results
As part of the technical due diligence process a
total of 8 diamond drill core holes at the Chulbatkan deposit were
completed during August of 2018 for the purposes of confirming
historically reported grades and interpretation. A total of 2,182
metres were drilled with all diamond drill holes reported in HQ
diameter.
Collar locations are reported in UTM WGS 84
Grid.
Samples were typically taken at 1.0 metre
interval lengths for all diamond drill core. All samples were sawed
in half and sealed in individually labelled plastic bags for
transport. All drill core samples were shipped via air freight to
the independent laboratory ALS Moscow, a certified laboratory, for
fire assay analysis. QAQC samples including certified standards,
blanks and field duplicates were included at an average rate of
approximately 13% per sample batch.
Composite assay intervals reported in this news
release are calculated by taking the weighted average off all gold
fire assay values included within the interval, sample grades have
not been capped.
The technical information about the Company’s
drilling and exploration activities at Chulbatkan contained in this
news release has been prepared under the supervision of the Officer
with the Company who is a “qualified person” within the meaning of
National Instrument 43-101.
Source: Kinross Gold Corporation
1 Mineral resource estimate is classified in
accordance with the Canadian Institute of Mining, Metallurgy
and Petroleum's "CIM Definition Standards -- For Mineral Resources
and Mineral Reserves" incorporated by reference into National
Instrument 43-101 "Standards of Disclosure for Mineral Projects".
Mineral resource estimate is 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.
2 The Company typically uses a $1,200 per ounce
gold price assumption for scoping level work and a $1,400 per ounce
gold price assumption for estimated mineral resources.
Photos accompanying this announcement are available at:
https://www.globenewswire.com/NewsRoom/AttachmentNg/6d35f4b8-ab3f-4944-a5dc-49d927641660
https://www.globenewswire.com/NewsRoom/AttachmentNg/1cab28d5-7fec-4505-84cd-78fa47953468
https://www.globenewswire.com/NewsRoom/AttachmentNg/759731da-2fa9-49b8-b6c0-56aa886be128
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