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La Coipa Restart Could Provide a Production Upside to Kinross

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Nov. 30 2015, Updated 11:04 p.m. ET

PFS completed

A prefeasibility study (or PFS) was ongoing at Kinross Gold (KGC) to explore the potential to resume operations at La Coipa, which was suspended due to higher costs in 2013. The study was completed during 3Q15, as scheduled. The PFS was based on plans to leverage company’s existing infrastructure at La Coipa.

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Key takeaways of PFS

The expected mine-life is 5.5 years, with an estimated cost of sales of $674 per ounce and all-in sustaining costs (or AISC) of $767 per ounce. The estimated initial capital cost is $94 million, pre-stripping is expected to be another $105 million, and life of mine sustaining capital is expected to be $96 million.

At a gold price (GLD) (IAU) of $1,200 per ounce and a silver price of $17 per ounce, the estimated internal rate of return (or IRR) is 20% with a net present value of $120 million. At a gold price (GLD) of $1,100 per ounce, the IRR drops to 15%.

Decision on the project

Based on these results, Kinross has decided to complete additional studies on the project and proceed with the permitting process. The management also mentioned during the call that since La Coipa is currently under care and maintenance and not starting from scratch, the permitting process should be shorter. The company has not yet made any decision on La Coipa and is looking for alternative ways to increase the mine life beyond 5.5 years.

This project is lower risk and less capital intensive with a slight upside at current market dynamics (15% IRR at a gold price of $1,100 per ounce). However, if the company is able to extend the mine life beyond 5.5 years, that could be a positive for the stock.

Kinross’s peers, including Newmont Mining Corporation (NEM), Goldcorp (GG), AngloGold Ashanti (AU), and Agnico-Eagle Mines (AEM) also have strong production growth pipelines.

If you don’t want to invest directly in individual miners, the VanEck Vectors Gold Miners ETF (GDX) provides an alternative route to exposure in the sector. GDX invests in senior and intermediate miners, including AngloGold Ashanti (AU) and Kinross (KGC), which make up 3.7% and 2.8%, respectively, of GDX’s total holdings.

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