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Energy and Resources Kinross’s clash with contractors over West African gold mines

Falling gold prices saw the company let go hundreds of employees at its Mauritanian operations since 2013, including suspending expansion at its Tasiast mine, above.

Kinross Gold Corp., facing an investigation in the United States over alleged corruption at its West African mines, has portrayed itself as the victim of "noise" by contractors who fail to win bids at its massive gold mine in the Sahara Desert in Mauritania.

In an interview last month, before the U.S. investigation was disclosed, Kinross executives in West Africa insisted their contracting procedures are transparent and fair. They denied local claims that the company faced pressure by the Mauritanian government to hire politically connected contractors, but they acknowledged the losing bidders have sometimes alleged wrongdoing in the contracting process.

"They go to some politicians and then you hear noise about it," said Mike Sylvestre, regional vice-president for Kinross operations in West Africa. "There does seem to be a lot of noise."

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Kinross said on Friday it had received subpoenas from the U.S. Securities and Exchange Commission and the U.S. Justice Department, seeking information about alleged "improper payments made to government officials and certain internal control deficiencies" at its gold operations in Mauritania and Ghana.

With the help of Canadian and American law firms, the company has conducted its own internal investigation into the allegations since August, 2013, when whistle-blower allegations surfaced. Under the company's whistle-blower policy, any allegations have to be examined, even if they are thought to be relatively minor.

The Toronto company, which declined to comment beyond the contents of its Friday media statement, did not reveal the identity of the whistle-blower and may not know his or her identity. It said it is co-operating with the SEC and Justice Department probes. In its Friday statement, Kinross said its own probe "has not identified issues that Kinross believes would have a material adverse effect on the company's financial position or business operations."

Typically, whistle-blowers are current or former employees, though in this case contractors or former contractors should not be ruled out. Kinross has let go hundreds of employees at its Mauritanian operations since 2013, when the slide in the gold price triggered the decision to suspend a $1.6-billion (U.S.) expansion at its Tasiast mine, which would have created 4,000 new jobs. The mine currently produces about 200,000 ounces of gold a year.

Under U.S. whistle-blower legislation, the SEC can pay an award, or "bounty," to those who provide information that leads to successful enforcements. The award can be as much as 30 per cent of the total fine imposed by the regulators, potentially earning a fortune for the whistle-blower. Kinross is subject to SEC oversight because its shares trade in New York as well as Toronto.

The company says it has awarded more than $1-billion in contracts to more than 600 Mauritanian suppliers since 2010. In a statement last month, it said it favours Mauritanian businesses "every time it's possible … through a transparent procurement process."

Raphael Sourt, the company's communications manager in West Africa, said allegations of wrongdoing are frequent. "When we award a contract, it's not uncommon that a company that doesn't get this contract will complain through the local media," he said in an interview last month. "It's completely unfounded and it's published by minor local websites, but still you have these complaints."

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The publication of these allegations "creates a perception that things aren't straightforward, when they are in fact straightforward," Mr. Sylvestre said last month.

"I can tell you unequivocally that's not the way we run our business here. It's tendered, the tenders get reviewed, bids get reviewed, and it's awarded based on technical merit and ability to do the job and cost. We award it, and then there's noise."

He said the government does not interfere with the company's contracting process or make any demands for favours.

The Mauritanian government has not alleged any wrongdoing by Kinross at its local operations.

Kinross, the world's fifth-biggest gold producer, acquired the Tasiast mine in 2010 as part of its $7.1-billion takeover of Red Back Mining Inc. The deal proved disastrous. As gold prices fell and operating costs remained high, Kinross wrote down most of its Tasiast asset. Last year, the mine lost $65-million and is expected to lose even more this year, Mr. Sylvestre said.

Kinross is now embroiled in a drastic cost-cutting operation in Mauritania, seeking to make the mine profitable by the end of 2017. The efficiency plan may see gold production rise somewhat. Last month, Kinross announced more than 225 layoffs and voluntary severances at the Mauritanian mine. Union leaders have threatened to launch strikes and protests at the mine, as they did in 2013 after a previous round of layoffs.

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