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An aerial view of Chulbatkan, a Kinross Gold development project in Russia. The invasion of Ukraine has forced Kinross Gold to make a rapid shift to a future without Moscow.Supplied

Kinross Gold Corp. chief executive Paul Rollinson was in Miami last Monday, prepping a PowerPoint presentation for the year’s biggest mining conference. Six of his 70 slides highlighted the company’s two properties in Russia.

Shortly before he was to take the stage, as the Russian army pushed deeper into Ukraine, Mr. Rollinson cancelled the session.

Kinross K-T had weathered many geopolitical storms over 26 years of operating Siberian mines, including Russia’s annexation of Crimea in 2014. Prior to President Vladimir Putin’s decision to send troops across the Ukraine border, the company expected it would be digging up gold in the Kremlin’s domain for years to come. But the invasion has forced Kinross, and a host of other global companies, to make a rapid shift to a future without Moscow.

Last Wednesday, Kinross suspended operations in Russia, where the company has more than 2,000 employees at two mining properties and its Moscow office. Kinross also donated $1-million to the Red Cross’s Ukraine humanitarian appeal. In an interview, Mr. Rollinson kept coming back to concerns about his employees’ futures, and the tragedy that is unfolding in Ukraine.

Kinross Gold’s future in Russia is in doubt as it shuts down operations in the country

“Our culture, globally, is to treat our people like family, and I’m deeply saddened and disappointed by what is happening in Russia,” said Mr. Rollinson, who estimates he has made 40 trips to Siberia and Moscow during his decade as Kinross’s CEO. He worked on building ties between Russia and Western economies by serving on the country’s Foreign Investment Advisory Council, alongside executives from Coca-Cola, Siemens and Proctor & Gamble.

For Kinross, suspending operations in Russia means ensuring teams on the ground can idle mines that work with chemicals and explosives. “We cannot simply flip the off switch on a complex and large mining operation,” Mr. Rollinson said. “We are in the process of evaluating next steps to land on the appropriate exit plan.”

Perversely, analysts predict exiting Russia will be good for Kinross in the long term. They say the financial hit can be absorbed. Russian mines account for just 13 per cent of Kinross’s gold production, and leaving the country may mean investors will stop penalizing the miner for the uncertainty that comes with operating under Mr. Putin’s regime.

“Kinross’ historic discount to the senior peers was largely a function of its exposure to Russia,” analyst Mike Parkin at National Bank Financial said in a report. “We believe we are at the cusp of a potential re-rating in the valuation of Kinross that could see it trade more in line with its senior peers.”

Kinross’s two Russian properties are in the country’s far east. Its Kupol mine has reserves that will last until at least 2025, and it also has a development project in Udinsk. Mining analyst Tanya Jakusconek, at Scotiabank, said in a report that suspending Russian operations will have a “minor” impact on Kinross’s free cash flow – projected at $466-million this year – “as most of the cash generated from Kupol was to be deployed into the Udinsk development.”

While Kinross looks for an exit from those mines, its Russian employees continue to receive paychecks. Mr. Rollinson said this is both the right thing to do for staff and critical to relations with the Russian government. Employees are being paid out of an estimated $75-million in cash and gold bullion Kinross held in Russia when it suspended operations. The company always keeps some of its cash in the country to pay local costs.

Last Friday, Russian First Deputy Prime Minister Andrei Belousov spelled out three options for Western companies doing business in the country. They can either keep operating, exit entirely or hand over their holdings to local managers until they return.

Russia’s offer to foreign firms: stay, leave or hand over the keys

Exiting completely will trigger a fast-track bankruptcy plan, Mr. Belousov said, effectively transferring the business to a Russian owner. National Bank’s Mr. Parkin said if Kinross keeps its properties in “maintenance” mode, at a cost of about $9-million annually, the company can preserve some sort of relationship with the Russian government. This, he said, would enable Kinross to eventually play a role in transferring ownership of the Kupol and Udinsk properties to a third party, which would boost the company’s stock price.

Kinross will take a $1-billion writedown on its Russian holdings later this year, Ms. Jakusconek predicted. She said this charge is already reflected in the company’s stock price. Kinross also owns mines in the United States, Brazil, Mauritania, Chile, Ghana and Canada.

The gold mining industry has been consolidating around its largest players, including Kinross, for a number of years. Mr. Rollinson, a McGill University mining engineer by training, said scale is increasingly important to investors and more takeovers are likely.

In late February, Kinross closed its $1.8-billion acquisition of Golden Bear Resources Ltd., which owns a property near Red Lake, Ontario. Mr. Rollinson said the company is now working with First Nations and other stakeholders to bring the site into operation, a process that is expected to take several years.

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