Analyst Actions: Kinross Gold Rated Outperform

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Kinross Gold Corp. ( KGC )


A. Soni

CP: US$ 5.94

TP: US$ 10

CAP: US$ 7.2b

1 416 352 4587

FDN negotiations over, $720M impairment was flagged in Q1 MD&A - no impact to our NAV

Event: On June 10th, 2013 after market Kinross announced that it will not proceed with further development of the Fruta del Norte project in Ecuador. Kinross' economic evaluation license for the project expires on August 1, 2013, at which point the La Zarza concession, which contains the entire FDN mineral resource, will revert to the government. Kinross will record a $720M impairment charge in Q2 ($20M cash portion related to severance and closure costs) as a result of the cessation of development.

KGC and government of Ecuador unable to agree on certain key economic and legal terms which balance the interest of all stakeholders. Therefore, Kinross concluded that it is not in the interests of the company and its shareholders to invest further in developing FDN.

Potential impairment charge of $700M (total actual charge expected to be $720M) flagged by Kinross in its Q1 MD&A: Kinross noted that "if the parties do not agree on the terms of an exploitation agreement by Aug. 1, 2013 without a form of extension from the Ecuadorian gov't, the La Zarza concession will be extinguished by law. At that point, Kinross would be required to incur a non-cash charge of ~$700M corresponding to the net book value of the asset." The gov't has indicated that it will not agree to an extension beyond the current Aug. 1, 2013 deadline.

We carried zero value in our NAV for FDN subsequent to Q1/13: We reduced our NAV for FDN to $0 after Q1/13 based on the potential for no agreement with the government as a likely outcome (see our report dated May 7, Q1EPS in-line and on track for 2013 guidance). Previously, we had carried $655M, or 6% in our pre-Q1 KGC NAV for FDN.

Kinross extends debt maturities for its undrawn $1.5B credit facility by one year to Aug. 2018 and its $1B term loan by two years to Aug. 2017.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright (C) 2016 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

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