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Kinross Gold iffy on African mine expansion

Gold prices have been kicked around lately, dropping almost as quickly as observers can read. It’s been a summer of discontent for a number of major gold plays, as prices haven’t closed above $1,390 U.S. since mid-June

And it doesn’t help when one player’s labour situation is rocky.

Kinross Gold (T.K, NYSE: KGC) was the subject of a strike earlier this month, one that was only solved earlier this week at its Tasiast mine in West Africa. The official word from the company is that the labour action’s effect on the company’s bottom line would not impact the company's 2013 regional West Africa guidance for production and production cost of sales, both of which remain unchanged. The strike began August 8.

Ironically, it was the Tasiast mine that is the centre of Kinross’ expansion plans, one which experts now believe will not take place after all, given the recent downturn in prices for the shiny yellow metal.

Rating experts at Bank of Montreal downgraded Kinross today to market perform from outperform, and removed the re-development of Tasiast from his production forecasts for the company.

Kinross released a pre-feasibility study on the project earlier this year and said it was proceeding with a full feasibility study, to be completed in the first quarter of 2014. But Chief Executive Officer J. Paul Rollinson said Kinross will be very careful to ensure the mine makes economic sense before going ahead with construction.

The proposed expansion project for the mine, located in Mauritania, has been a major headache for Kinross. The company booked a $2.49-billion writedown on Tasiast in January 2012, and later in the year took a further $3.206-billion impairment charge on 2012 earnings, mostly attributable to Tasiast.

Experts also pointed out that the pre-feasibility study concluded that building a single new 38,000 tonne-per-day (tpd) mill would make the most sense.

The Tasiast Gold Mine began production in 2008, and Kinross Gold purchased it as part of a $7.1-billion takeover of Red Back Mining in 2010. The goal was for the expansion to increase production from 56,000 ounces per year (as of 2010) to 1.5 million, but, as mentioned, that’s still up in the air.

The quarterly figures, released at the end of the last month, don’t seem to indicate a decision will be made on Tasiast expansion till at least 2015. Revenues came at $968 million, compared with $1.005 billion in the same quarter last year, leading to a net loss of $2.48 billion, or $2.17 per share, compared with net earnings of $113.9 million, or $0.10 per share, in Q2 2012.

Kinross says, because gold prices have plummeted so, it has tried to get a handle on operating costs and capital expenditures, and maximize cash flow. Kinross has identified additional expected savings of approximately $180 million for the balance of 2013 and expects further savings this year as ongoing cost reviews are completed. The Company is also targeting significant capital spending reductions in 2014.

As gold prices found a pulse Friday, so, too, did stock prices for outfits like Kinross, which tacked on 19 cents soon before Friday’s close in Toronto, to $6.16, in a 52-week trading range of $4.74 to $10.98. In New York, Kinross shares hiked 19.5 cents U.S. to $5.87 U.S., in a 52-week range of $4.53 U.S. to $11.20 U.S.