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Key Factors to Watch in Kinross Gold’s 3Q16 Results

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Conversion to reserves

Kinross Gold (KGC) acquired 100% of the Bald Mountain gold mine and the remaining 50% of the Round Mountain gold mine in from Barrick Gold (ABX) Nevada in November 2015. It expects to convert a substantial part of Bald Mountain’s 4 million ounces of resources to reserves as it continues with infill drilling.

The current mine plan assumed a conversion of 30% of resources, which was dependent on its receipt of permits. On August 26, 2016, the company announced that the US Bureau of Land Management had allowed it to increase exploration activities and the mine’s potential expansion.

This project will help Kinross to diversify its geopolitical risk. Peers (RING) Goldcorp (GG), Yamana Gold (AUY), and Agnico Eagle Mines (AEM) face less geopolitical risk than Kinross.

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Further upside

The permits will allow Kinross to expand its existing mine facilities, which will provide it with significant flexibility for future growth. It will now be able to complete additional drilling that will drive reserve expansion. 

The company mentioned that its future options for growth could come from an additional heap leach facility and a carbon absorption plant, beyond what is required by its current mine plan.

Tasiast restart

Kinross announced in June 2016 that it was temporarily halting its mining and processing activities at the Tasiast mine in Mauritania due to government allegations of invalid work permits. Kinross resumed normal mining and processing operations at Tasiast in mid-August.

The company also stated that two major construction contracts regarding earthworks and concrete works had been awarded for its Phase One expansion project. The Phase One expansion at Tasiast is expected to increase its mill throughput capacity from 8,000 to 12,000 tons per day. It should also significantly reduce operating costs and increase production for Tasiast.

While Kinross could face a falling production profile in the medium term, the Tasiast Phase One expansion is an opportunity to replace its falling production.

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