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Kinross to drop Mauritania mine expansion on weak gold price, reports wider Q4 loss

Last updated: 08:34 11 Feb 2015 EST, First published: 09:34 11 Feb 2015 EST

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Kinross Gold (TSE:K) (NYSE:KGC), Canada’s third-biggest producer of the metal, said it will not go ahead with a $1.6 billion expansion of its Tasiast mine in Mauritania because of the weak gold price. Shares fell.

The Toronto-based miner made the announcement as it reported an unexpected fourth-quarter loss.

Kinross had been seeking finance for the project that would transform the African mine into its largest producer with much lower costs.

The decision will preserve cash and liquidity, while giving Kinross flexibility to move on the expansion or other opportunities in the future, the company’s chief executive officer, J. Paul Rollinson, said in the earnings statement.

Rollinson told Reuters that although Kinross was in a strong cash position and project financing talks had gone well, the company was concerned about cashflow during the 35 months of construction if the gold price fell further.

Gold, which was last at $1,233 an ounce, is down 36 percent from its peak of $1,920 an ounce in September 2011.

"We believe in the quality of the project. It's really about how much risk tolerance we are prepared to take on future cashflows looking out three years," Rollinson said in the Reuters interview.

The expansion of the mill at Tasiast is Kinross' biggest growth project, and without it analysts are concerned about the company's growth prospects.

Rollinson said Kinross would look at merger and acquisition opportunities, as it always has.

Kinross acquired Tasiast as part of its $7.1 billion takeover of Australia's Red Back Mining in 2010. It has written down virtually all of the acquisition price of the takeover, which cost former Kinross CEO Tye Burt his job.

Kinross’s U.S.-listed shares fell as much as 2.8 percent to $3.15 in New York premarket. The stock had gained 15 percent since the beginning of the year through yesterday.

Kinross, which has operations in North and South America, Africa and Russia, reported its fourth-quarter net loss expanded to $1.47 billion, or $1.29 a share, from $740 million, or $0.65 per share, a year earlier.

Removing a $932.2 million write-down and other one-time items, the loss was 0.01 per share, missing the $0.01 profit expected by analysts, based on 22 estimates compiled by Bloomberg.

Fourth-quarter gold production of 672,051 ounces beat the 653,600 average of eight estimates compiled by Bloomberg.

The company’s so-called all-in sustaining costs, at $1,006 an ounce, were 14 percent lower than a year earlier, but 9.5 percent higher than in the third quarter.

For 2015, Kinross said it expects to produce about 2.4 million to 2.6 million ounces of gold equivalent ounces at an all-in sustaining cost of $1,000 to $1,100 an ounce.

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