Kinross Gold Corp. (
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
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
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.
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