One of Canada’s largest gold producers, Kinross Gold Corp (TSE:K, NYSE:KGC), is halting the development of its Fruta del Norte gold project in Ecuador after failing to agree with the government over taxes. Kinross’ share price which closed higher in Toronto and New York yesterday, June 10, shed more than two percent in after-hours trading on the NYSE.
Kinross Cancels Ecuador Gold Mine Plan
Toronto-based Kinross said in a statement yesterday that it would not proceed with the development of its Fruta del Norte (FDN) gold project in Ecuador after failing to reach an agreement “on certain key economic and legal terms” with the government.
“After a great deal of effort to arrive at a mutually agreeable outcome, it is unfortunate that the parties were unable to reach an agreement on FDN which would have met those criteria,” the Kinross chief executive Paul Rollinson said in the statement. The company added that it had notified the government of the decision.
Kinross, which bought the Fruta del Norte project in 2008 for C$614 million (£387 million), said it would incur a charge of approximately $720 million (£462 million) in the second quarter, with $700 million expected to be a non-cash charge.
Ecuador has refused to renegotiate a plan for a 70 percent windfall tax on revenue and has also declined to allow a sale of the project or to extend Kinross’ licence beyond the August 1 deadline.
“It's been a tough negotiation,” Reuters quoted Kinross’ Rollinson as saying. “Sometimes the best deal is the one that you don't sign, and that seems to be the case here.” Asked whether there was any way for the miner to recover some of the value of the project, Rollinson said the two sides seemed to have reached an impasse.
“I would hope, maybe, if we can have a collaborative transition process, maybe there's something there,” Rollinson noted. “But they have told us they would not support a sale or provide an extension to the license.”
Pedro Merizalde, Ecuador’s Non-Renewable Natural Resources Minister, said that his country was going to “accelerate” the development of the Fruta del Norte project without Kinross. “We haven't ceded in the face of the transnationals' proposals,” Bloomberg quoted Merizalde as saying. “The state maintains sovereignty over the management of its natural reserves.”
Kinross’ decision to halt the development of Fruta del Norte project is seen as a blow to Ecuador given the government’s efforts to encourage investment in the country’s mining sector. While the Latin American country does not have a significant mining industry, some analysts opine that Ecuador sits along the same mineral-rich vein which has made mining central to other Andean economies.
Kinross’ share price closed 1.10 percent higher at C$6.44 in Toronto on 10 June 2013. In New York, Kinross’ share price closed 0.80 percent higher at $6.32 but fell by 2.69 percent to $6.15 in after-hours trading on 10 June 2013.