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Why Is Kinross’s Long-Term Production Profile in Decline?

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Declining reserves

Kinross Gold (KGC) is under severe pressure to replace its declining reserve base. Several of its mines are expected to close over the next few years. Kinross Gold’s Kettle River–Buckhorn mine, Fort Knox, and Round Mountain have very low exploration potential to increase the mine life. Based on the current reserves, they are expected to conclude operations between 2018–2020.

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Short mine life

Kettle River will approach the end of its mine life in the beginning of 2016. Fort Knox will end mining the high-grade material by 2017, but it will continue to produce some low-grade material until about 2019. Round Mountain does have resource inventory, but it will most likely take up a higher metals price environment for conversion of these resources into reserves.

On the other hand, Chirano has close to four years of mine life left, but there is the potential to replace the reserves through exploration.

Projects to offset decline?

There are several projects in progress, however, most of them are small projects.

  • Paracatu tailings reprocessing facility: This project expects to add 34,000 gold equivalent ounces per year at the production cost of sales of $400 per ounce. It is on track for a 4Q15 startup.
  • Chirano mine life extension: Currently Kinross is working on the Chirano mine life extension, which has the potential to increase the mine life by one year to 2020. The company expects to mine additional ounces at two known mineral deposits, Paboase and Akoti.
  • Potential restart of La Coipa: A pre-feasibility study (or PFS) began in 2Q14 to explore the potential to resume operations at La Coipa. The study remains on track for completion during the 3Q15. There could be a potential to mine higher grade material and leverage existing infrastructure in another jurisdiction.

While some other gold miners are also facing the issue of reserves decline, Kinross’s reserve decline problem is more severe than its peers, including Barrick Gold (ABX), Yamana Gold (AUY) and Agnico-Eagle Mines (AEM). Agnico and Yamana form 8.4% of the VanEck Vectors Gold Miners ETF’s (GDX) holdings. Gold-backed ETFs like the SPDR Gold Trust ETF (GLD) and the iShares Gold Trust ETF (IAU) are another way for investors to get diversified exposure to gold prices.

There is one asset that has the potential to offset Kinross’s declining reserve base, the Tasiast expansion project. As we’ll see in the next part of this series, there are several difficulties in kickstarting that project.

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