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The Tasiast Gold Mine in Mauritania.

A pre-feasibility study determined that a feasibility study is a good idea, yet Kinross Gold Corp. is no closer to deciding whether it should expand its troubled gold project in west Africa.

Sound complicated? Such is the life of Kinross these days.

After writing off $5.5-billion in value last year, much of it stemming from the Tasiast project under review, investors were left wondering how the gold miner would proceed. Would it expand the troubled project that was acquired in the $6.1-billion acquisition of Red Back Mining in 2010? Or would it hold off in a rocky gold market?

The results of the pre-feasibility study, announced Monday, were supposed to offer some guidance. And they do. We now know that Kinross expects capital costs totalling $2.7-billion to develop the project. However, the final construction decision remains a year away. In the meantime Kinross will continue to spend the $624-million it allocated to the project this year.

Analyst Alec Kodatsky at CIBC World Markets doesn't think this the best use of the company's cash. The "project appears a pale shadow of past expectations," he wrote in a note to clients. "Abandoning the expansion of Tasiast places the company in a difficult position, but from a market perspective may prove more palatable than spending significant capital on an unloved project."

"Unless gold prices or project economics improve substantially in the next year, the expansion is unlikely to gain acceptance," he continued. Though he never outright says the company should scrap the expansion, his analysis makes that point extremely clear.

The key problem: the project's capital expenditures have skyrocketed. Tasiast's net present value is now just $1.1-billion. And you only arrive at that value if you assume a gold price of $1,500 an ounce.

The optimists will argue that shelling out for some additional project exploration could yield some surprises and boost the project's value, but there's a lot of wishful thinking in those dreams.

Plus, delaying a decision will only add to the uncertainty already weighing on Kinross's shares, which closed at $5.47 on Tuesday. (Just over a year ago Mr. Kodatsky had a price target of $15 per share.) "With this overhang persisting, we struggle to see Kinross' valuation gaining traction against its peers," he noted.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
CM-N
Canadian Imperial Bank of Commerce
+1.3%50.72
CM-T
Canadian Imperial Bank of Commerce
+1.13%68.67
K-N
Kellanova
+1.13%57.29
K-T
Kinross Gold Corp
+3.88%8.31
KGC-N
Kinross Gold Corp
+4.25%6.13

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