Kinross May Boost Gold Production 57% Within 5 Years (Update2)

By Rob Delaney

Sept. 29 (Bloomberg) -- Kinross Gold Corp., Canada’s third- largest producer of the precious metal, may increase output by about 57 percent in the next five years if it proceeds with projects under evaluation in South America.

Proposed expansions at three producing mines and the possible development of three new projects may add about 1.3 million ounces of annual output, Chief Executive Officer Tye Burt, 52, said yesterday. Putting all six into production may cost about $3 billion, Burt said.

“These are major projects, and if they all received the go-ahead, they would see us growing for the next five or six years,” Burt said in an interview at the company’s headquarters in Toronto. “They could add 1.3 million ounces of annual production, but most importantly at very attractive economics.”

Burt said on Sept. 16 that the gold industry “may be in the midst of a perfect storm” because demand for the precious metal is outpacing new discoveries. Gold climbed to an 18-month high of $1,025.80 an ounce on Sept. 17 in New York. The price reached a record of $1,033.90 in March 2008.

Burt also is evaluating acquisition targets, mainly in regions where the company has existing projects: South America, Russia and North America. He wouldn’t rule out transactions similar in size to Kinross’s 2007 purchase of Bema Gold Corp., which was valued at about $3.5 billion.

Kinross rose C$1.08, or 4.8 percent, to C$23.43 at 4:10 p.m. in Toronto Stock Exchange trading, the biggest daily gain since Sept. 3. The shares have increased 37 percent in the past year.

‘Sacred’ Criteria

Kinross uses the “rather sacred” criteria of per-share cash flow and per-share gold reserves to evaluate potential targets, Burt said. “If we can see deals that are accretive on those metrics, that benefit our portfolio in the long-term, and are in the countries we’ve described, then we’re looking very closely,” Burt said.

The six projects under review include expansions at the Maricunga and La Coipa operations in Chile and Paracatu in Brazil. The three projects that Kinross may proceed with first are the Cerro Casale and Lobo-Marte deposits in Chile and Fruta del Norte in Ecuador.

“Kinross has one of the best growth profiles looking out over the next two to three years,” Haytham Hodaly, a mining analyst at Salman Partners Inc., said today in a telephone interview. While Lobo-Marte and Fruta del Norte look positive based on information available so far, “it’s too early to determine whether Cerro Casale is an economic project,” Hodaly said.

Kinross gained 50 percent control of Cerro Casale as part of its Bema acquisition. Barrick Gold Corp. owns the remainder.

Rising Production

In the first half, the company’s gold-equivalent production, which includes silver output, rose 47 percent from a year earlier to 1.09 million ounces, Kinross said last month. For the full year, the company forecast 2.3 million to 2.4 million ounces of gold-equivalent production.

Gold output costs may rise 3 percent to 5 percent in 2010 because of higher wages and input expenses, Burt said yesterday. Kinross forecast last month that costs this year will be about $390 to $420 an ounce.

Kinross said in June that it’s considering as many as 50 investments in all countries where the company has operations, including Russia and the U.S. The company wants to acquire both development-stage and active projects and is likely to take on local partners for any investments in Russia, Kinross Vice President James Crossland said in a June 4 interview.

Toronto-based Barrick is the world’s largest gold producer and Vancouver-based Goldcorp Inc. is Canada’s second-largest by market value.

To contact the reporter on this story: Rob Delaney in Toronto at robdelaney@bloomberg.net.

Last Updated: September 29, 2009 16:21 EDT