Kinross's Kupol operation in Russia
Kinross Gold Corp. is suspending its mining operations and all development work in Russia’s far east, amid the country’s continuing military incursion into Ukraine.
Last year, Russia accounted for 23 per cent of Kinross’s production, and the Kupol mine complex was its most profitable operation, generating US$443-million in income.
In a statement on Wednesday, the company said it made the decision to suspend operations after considering “the safety and well-being of its more than 2,000 employees, and in recognition of its legal obligations to manage and mitigate the mine’s environmental impact on an ongoing basis.”
Kinross added that it will adhere to all sanctions and legal restrictions “that have, or will be, announced by relevant governments.”
Over the past week, Western governments have imposed punishing sanctions on Russia, including banning some of the country’s banks from the global financial system’s key communication system, and freezing the central bank’s foreign-exchange assets. Several major international corporations with a presence in Russia have signaled intentions either to pull out of the country, or to suspend operations, including Exxon Mobil Corp. and Ford Motor Co.
The Toronto-based senior gold miner has operated in Russia for more than 25 years, and while its mines have generally run smoothly, the company’s stock has long traded at a discount to its peers because of the political risk associated with the country.
Last week, Kinross played down the impact of the war in Ukraine, saying that Kupol was 7,000 kilometres away from conflict zones and it had enough supplies on hand to last a year. Several analysts, however expressed concern, including John Ing with Maison Placements in Toronto. He feared that the Russian government could potentially make a move to nationalize Kinross’s assets in the country if the situation deteriorates.
While drastic, such a move is not without precedent. Last year, Kyrgyzstan nationalized Centerra Gold Inc.’s Kumtor mine in the former Soviet republic.
For Kinross, the uncertainty over Russia comes at a time when its shares had already been underperforming. Last year, a mill fire at its large Tasiast mine in West Africa significantly curtailed production, and the company was forced to address a pit wall instability problem at another mine in the United States.
In an effort to diversify its risk away from politically tricky mining jurisdictions, such as Russia and West Africa, Kinross bought Canadian junior development firm Great Bear Resources Ltd. The company’s Red Lake, Ont., project is early stage and isn’t expected to be in production until the end of the decade.
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Niall McGee