Déja vu as Kinross sells troubled mine to Lundin company

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The latest deal between mining veteran Lukas Lundin and Kinross Gold Corp. is a case of history repeating itself.

This is the second time the Lundin family has ended up on the rosier side of a deal with the Toronto-based gold miner.

Kinross announced this week that it will sell its idled Ecuador gold project to Fortress Minerals Corp., a company controlled by the Lundins, for $240-million (U.S.).

That is a fifth of the $1.2-billion Kinross paid for Aurelian Resources, the owner of the Ecuador gold property, called Fruta del Norte. (Kinross recorded a $720-million impairment charge on the project.)

In 2010, Lukas Lundin convinced Kinross to buy his Red Back Mining company for $7.1-billion. Red Back owned the Tasiast gold mine in Mauritania, another asset Kinross has mostly had to write down.

Kinross' stock has dropped to $3.15 (Canadian) – its lowest level since 2001 – even though the company led the industry in clamping down on costs when the price of gold started to plummet. Gold is trading close to $1,240 (U.S.) an ounce, down a third from its high of $1,900 in 2011.

That's a lot of bad luck, or bad timing, for Kinross.

Kinross bought Fruta del Norte in 2008 during the commodity boom, around the same time that Ecuador's left-leaning government under Rafael Correa came to power. Mr. Correa's administration changed the country's mining laws and imposed a 70 per cent tax on mining projects.

Since then, gold has weakened, and Kinross suspended the project. Now, the Correa government is changing its tune.

Ecuador's mining tax would have kicked in when the price of gold hit $1,500 an ounce. It has since been raised to $2,200 an ounce, and now the law itself is up in the air as Lundin's company gets ready to negotiate economic terms with the Ecuadorian government.

"A large part of this is timing," Ron Hochstein, the chairman of Lundin's Fortress, said in an interview. "The Correa government has realized that mining is one facet of the country's economy that is still lagging. They are aware that the taxation was the real burden or hurdle for Kinross."

Mr. Hochstein said Ecuador's mining tax will be applied to the so-called marginal ounce, which is the price per ounce of gold less the cost associated with building the operation and mining the gold.

Mr. Hochstein said he has not spoken with Mr. Correa about the mining tax, but has spoken to the country's mines minister, who supports the development of Fruta del Norte.

"We think that there is actually going to be more pressure from the government to move forward with this," he said. "This is obviously the flagship asset in the country."