Apr 1 2016
Kinross Gold Corporation is pleased to announce that it is proceeding with the Phase One expansion of its Tasiast mine in Mauritania. Phase One is expected to increase mill throughput capacity from the current 8,000 tonnes per day (t/d) to 12,000 t/d, while significantly reducing Tasiast's operating costs and increasing production.
Preparations for Phase One construction to install incremental crushing and grinding capacity to the existing carbon-in-leach (CIL) circuit, which includes an oversized semi-autogenous grinding (SAG) mill and gyratory crusher, will begin immediately. Phase One is expected to reach full production by the end of Q1 2018 with estimated capital expenditures of approximately $300 million.
| Phase One Feasibility Study Highlights* |
| Estimates |
Phase One |
| Throughput capacity (t/d) |
12,000 |
| Average annual production (Au oz.) |
409,000 (2018-2027) |
| All-in sustaining cost(1) (per ounce) |
$760 (2018-2027) |
| Production cost of sales (per ounce) |
$535 (2018-2027) |
| Initial capital costs(2) (millions) |
$300 |
| Internal rate of return (IRR)(3) |
20% |
| Net present value (NPV)(4) (millions) |
$635 |
*Based on a $1,200 per ounce gold price assumption and oil price assumption of $45/bbl and no Phase Two expansion.
The Company is also pleased to release details of a prefeasibility study on a combined potential Phase One and Phase Two expansion based on installing additional mill throughput of 18,000 t/d for a total combined capacity of 30,000 t/d. This potential expansion contemplates replacing the two current ball mills with a new larger ball mill, adding incremental power generation to the existing 20 MW heavy fuel oil power plant and additional leaching and thickening capacity, upgrading the water supply infrastructure, and expanding the mine fleet.
| Combined Phase One and Phase Two Prefeasibility Study Highlights** |
| Estimates |
Phase One and Two combined |
| Throughput capacity (t/d) |
30,000 |
| Average annual production (Au oz.) |
777,000 (2020-2026) |
| All-in sustaining cost1 (per ounce) |
$665 (2020-2026) |
| Production cost of sales (per ounce) |
$460 (2020-2026) |
| Capital costs(5) (millions) |
$920 |
| Internal rate of return (IRR)3 |
17% |
| Net present value (NPV) 4 (millions) |
$885 |
**Based on a $1,200 per ounce gold price assumption and oil price assumption of $45/bbl.
Detailed study results for a combined Phase One and Phase Two 30,000 t/d expansion can be found in an updated NI 43-101 Technical Report for Tasiast available on the Company website at www.kinross.com. The Phase One feasibility study has been reviewed by third-party independent reviewers and was found to be consistent with industry best standards.
CEO commentary
J. Paul Rollinson, President and CEO, made the following comments in relation to the Tasiast two-phased expansion studies:
"This phased approach allows Kinross to transform Tasiast into a lower cost, cash flow positive operation in the near term while preserving the operation's significant growth potential. Phase One, which is expected to reach full production by the end of Q1 2018, will require an estimated initial capital investment of approximately $300 million, to be self-financed by the Company. The expansion is forecast to reduce Tasiast's production cost of sales per ounce by an estimated 48% while increasing annual production by an estimated 87% compared with 2015. The Phase One expansion has robust standalone economics, including a positive 20% expected internal rate of return.
"Phase Two, which anticipates increasing total throughput to 30,000 t/d, underscores Kinross' focus on financial discipline. The forecast total capital expenditure for the combined Phase One and Two has been significantly lowered compared to previous expansion studies. With lower capital required, the expected benefits remain compelling, with a 30,000 t/d Tasiast expected to be the Company's largest and lowest cost operation with a long estimated mine life.
"The two-phased approach strikes the right balance between growth and preserving balance sheet strength and is well-suited to the current gold price environment. Phase One achieves Kinross' near term goals with a manageable investment while allowing the Company to reassess market conditions and further optimize the project before deciding to proceed with Phase Two. In short, this is the right project for Kinross at the right time."
Phase One 12,000 t/d expansion overview
The Phase One feasibility study is based on increasing the current 8,000 t/d throughput capacity to 12,000 t/d. The additional processing capacity is expected to be achieved with the addition of a gyratory crusher, an oversized SAG mill and three leach tanks, as well as improvements to other components of the processing circuit. The new mill is forecast to produce an average of approximately 409,000 gold ounces a year during the first 10 years (2018-2027, when mining will occur), with a forecast cumulative production of 5.0 million gold ounces to 2033. Milling of residual stockpiled ore will extend the estimated mine life to 2033.
Production cost of sales is estimated to average $535 per ounce, with estimated all-in sustaining cost of $760 per ounce for 2018-2027. Mill grades are expected to average 3.1 g/t over this period.
Preparations for Phase One construction will begin immediately, with expected forecast capital expenditures of $300 million, plus estimated capital stripping of $428 million (2016-2019). Engineering work is 35% complete and is expected to reach 80% by end of July 2016. A significant amount of contractual commitments and site establishment work is expected to occur during Q2 2016, with full field construction expected to commence in Q3 2016. Phase One commissioning is expected to begin in Q4 2017, with full production expected by the end of Q1 2018.
Based on an assumed gold price of $1,200 and oil price of $45/bbl, the expansion has an estimated IRR of 20% and NPV of $635 million (after tax and unlevered, from April 1, 2016 forward) and is expected to generate $1.16 billion in free cash flow over the life of mine.
*Based on a $1,200 per ounce gold price assumption and oil price assumption of $45/bbl and no Phase Two expansion.
Phase One financing and revised guidance for 2016 capital expenditure
With the completion of the acquisition of Bald Mountain and 50% of Round Mountain in January, and the recently completed bought deal equity offering (including the exercise of the 15% over-allotment option in March), Kinross has a pro-forma cash balance of approximately $700 million and $1.5 billion available on its revolving credit facility for total liquidity of approximately $2.2 billion. Following the scheduled repayment of $250 million in Senior Notes on September 1, 2016, Kinross will have no debt maturities until August 2019. The Company expects that its existing liquidity sources will be sufficient to fund the completion of the Phase One expansion.
As a result of the Phase One expansion go-ahead decision, the Company's capital expenditure guidance for 2016 is now forecast to be $755 million, compared with $595 million announced on February 10, 2016, as an additional $160 million is expected to be spent on expansion activities this year.
Phase Two 30,000 t/d expansion overview
The Phase Two prefeasibility study contemplates installing additional mill throughput of 18,000 t/d for a total combined capacity of 30,000 t/d. The potential expansion would replace the two current ball mills with a new larger ball mill, and add new leaching, thickening and refinery capacity. An additional 60 MW of capacity would be added to the existing power plant to power the 30,000 t/d mill, which is forecast to have an average production of approximately 777,000 gold ounces a year from 2020-2026, with a forecast cumulative gold production of 6.4 million ounces to 2030.
Production cost of sales is estimated to average $535 per ounce for the life of project, with forecast all-in sustaining cost of $720 per ounce. Mill grades are expected to average 1.9 g/t. Capital costs for the additional 18,000 t/d expansion are forecast to be $620 million, plus incremental estimated capitalized stripping of $119 million (2016-2019). The combined estimated total capital expenditures for Phase One and Phase Two is expected to be approximately $920 million.
A feasibility study of Phase Two is expected to be initiated in the second half of 2016, with a potential go-ahead decision targeted for the end of 2017 and construction expected to commence in early 2018. Based on this timeline, Phase Two could potentially reach full production in early 2020.
Based on an assumed gold price of $1,200 and oil price of $45/bbl, the expansion has an estimated IRR of 17% and NPV of $885 million (after tax and unlevered, from April 1, 2016 forward), and is expected to generate $1.66 billion in free cash flow after tax over the life of mine.
**Based on a $1,200 per ounce gold assumption and oil price assumption of $45/bbl and combined Phase One and Phase Two expansion.
Expansion capital costs
The combined Phase One and Phase Two expected capital expenditures of approximately $920 million is significantly lower compared with the 2014 feasibility study estimate of $1.6 billion for the new-build 38,000 t/d plant. This forecast reduction was achieved through a combination of factors: scale effect of approximately 20% lower throughput capacity; more efficient leveraging of the existing mill and infrastructure; a leaner approach to engineering and construction management facilitated by the two-phased approach; and generally more favourable market conditions for procurement of equipment packages and construction contracts.
Gold price sensitivity estimates
Mineral reserves and mineral resource estimates(6)
As the combined Phase One and Phase Two approach contemplates a lower throughput rate compared with the 2014 feasibility study, and a slightly higher forecast processing cost per tonne, the pit design was reduced slightly and cut-off grade increased, thereby decreasing the estimated proven and probable mineral reserves from 9.0 million ounces (as of December 31, 2015) to 8.2 million ounces. Resulting estimated grades increased slightly from 1.8 g/t to 1.9 g/t. Tasiast's estimated measured and indicated mineral resources also decreased slightly, from 3.4 million ounces (as of December 31, 2015) to 3.2 million ounces, with estimated grades increasing to 1.3 g/t from 1.2 g/t.
The Phase One feasibility study and Phase Two pre-feasibility study form the economic basis of the estimated proven and probable mineral reserves. Estimated measured and indicated mineral resources that were not converted to mineral reserves, and inferred mineral resources, are not included in the life of mine plan and economic analysis. The studies also do not contemplate promising exploration targets, including the Tamaya deposit in the Tasiast Sud permit area, approximately 15 kilometres south of the Tasiast mine. The structural trend hosting Tamaya remains underexplored and is considered highly prospective for the definition of new mineralization.
Presentation and question and answer session
In connection with this news release, Kinross' management team will hold a presentation followed by a question and answer session at 1 p.m. ET to discuss details of the studies. The presentation will be available via audio webcast on our website at www.kinross.com, where it will be archived.