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Kinross's Kupol operation in Russia.

After more than 20 years in Russia, Kinross Gold Corp.’s K-T future in the country is in doubt, with some analysts speculating there may be no path back to production there, even if the war in Ukraine ends quickly.

The Toronto-based gold miner said it is mothballing its Kupol mine in Russia’s far east and its development project Udinsk, in the face of tightening Western sanctions against Russia, and after several other multinationals started pulling out of the country.

Last year, Russia accounted for 23 per cent of Kinross’s production, and the Kupol mine complex was its most profitable segment, generating US$443-million. Only last week, Kinross had reassured the market that all was well at Kupol. The mine was producing as normal, and had enough supplies on hand to last a year, the company said. It wasn’t overly concerned about the war, because it had weathered a similar crisis in Russia before, referring to the 2014 annexation of Crimea.

Fahad Tariq, an analyst with Credit Suisse, wrote in a note to clients that Kinross’s about-face was driven by the “much more severe sanctions during this conflict.” He now expects the company’s Russia operations to be put on hold “indefinitely.”

Kinross Gold suspending Russian mining operations amid Ukraine invasion

Over the past week, Western governments have imposed a series of punishing sanctions on Russia, including banning its banks from SWIFT, the global financial system’s key communication system, and freezing the central bank’s foreign-exchange assets. Several multinationals, including Exxon Mobil Corp. and Ford Motor Co., have either pulled out of the country or ceased operations.

Analysts on Thursday slashed both their target prices on Kinross’s stock and their valuation estimates for Kupol. Some suggested that given the international condemnation of Russian President Vladimir Putin, the idea of Kinross ever going back to business as usual in Russia, and indirectly funding the Russian government’s military operation, may be untenable. Kinross last year paid US$136-million in taxes to Russia from mining in the country.

“Even in the event there is a near-term resolution to the crisis, the invasion is likely to result in longer-term repercussions on Western relations with Russia, after crossing a line that appears hard to walk back from,” said Carey MacRury, an analyst with Canaccord. “We have removed Kupol and Udinsk from our production and financial forecasts.”

Founded in the 1990s, Kinross made its big move into Russia by acquiring Bema Gold Corp. in 2007 for US$3.2-billion. Kinross put Kupol into production the same year. In 2019, Kinross acquired Udinsk for $283-million.

Kinross has long traded at a discount to its peers in large part because of its exposure to Russia. The Globe and Mail reported in 2020 that Kinross previously considered breaking the company into two separate publicly traded entities, with one holding its risky Russian and West African mines, and the other holding its mines in North and South America, as a strategy that could create better value.

If there is a bright spot in the current Russian crisis to be found for Kinross, it’s that its long-term plan to reduce its exposure to Russia has been accelerated, albeit by necessity.

Kupol’s percentage of production within the company’s portfolio was already projected to fall this year to about 13 per cent of its production. That’s partly because production at Kupol has started to level off, as the mine nears the end of its life. And after a difficult 2021, owing to a mill fire, production at the company’s Tasiast mine in Mauritania is expected to rebound strongly also this year.

Over the long term, Kinross plans to get a significant chunk of its production from Canada, which would be a game-changer if it transpires. Last year, Kinross beat out rivals including Barrick Gold Corp. to buy junior Canadian development firm Great Bear Resources Ltd. The trouble with Great Bear, however, is it will take about seven years for its Dixie gold project in Red Lake, Ont., to come to fruition. But, if it happens, investors should be much more positively inclined toward Kinross, said Credit Suisse’s Mr. Tariq.

“The silver lining to the messy exit from Russia,” Mr. Tariq wrote, “is that Kinross’s portfolio going forward will be skewed more favourably toward the Americas, and could result in a better valuation longer term once the Dixie project comes online.”

On Thursday, shares in Kinross fell by 2.6 per cent on the Toronto Stock Exchange to close at $6.70 apiece.

Kinross chief executive officer Paul Rollinson declined an interview request.

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