Kinross halts FDN project development in Ecuador over tax impasse

The move will incur a charge of approximately $720m for Kinross in the second-quarter.

New Statesman
A group of miners at the Casa Negra mine in Portovelo, Ecuador. Credit: Getty Images.

Kinross Gold Corporation has decided to halt further development of the Fruta del Norte (FDN) project in Ecuador, after it failed to reach an agreement with the government over a 70 per cent windfall tax on sales.

With this decision, Kinross will incur a charge of approximately $720m in the second-quarter, of which $700m would be a non-cash, reflecting its entire net carrying value of the project, and approximately $20m would be accrued severance and closure costs.

The company, which invested about $1bn in Ecuador since 2003, said that FDN project is not in the interests of its shareholders.

The move is seen as a blow to Ecuador as it is amending its mining law in an effort to attract investments in the country.

The Canadian gold mining company and the Government of Ecuador failed to agree on certain key economic and legal terms that balance the interests of all stakeholders, despite more than two years of discussions on exploitation and investment protection deals for the project.

Paul Rollinson, CEO of Kinross Gold Corporation, said: “We have said that we will exert strict capital discipline across our company, that we will allocate our capital only to projects which meet our investment criteria, and that we will only enter into agreements that are in the best interests of the company and its shareholders.”

Rollinson added: “After a great deal of effort to arrive at a mutually agreeable outcome, it is unfortunate that the parties were unable to reach an agreement on FDN which would have met those criteria. That said, we respect the Government of Ecuador's sovereign authority and its right to determine how its resources are developed.”

The Ecuadorian government had indicated that it would not agree to extend the economic evaluation phase of the project for up to 18 months, or suspend the beginning of the exploitation phase beyond its deadline of 1 August 2013.

The government further indicated that it would not support Kinross’ efforts to solicit a potential new partner or a buyer for the sale of the project. Also it refused to negotiate on the 70 per cent tax on sales. 

Kinross, which employs around 9,000 people, has mines in Brazil, Canada, Chile, Ecuador, Ghana, Mauritania, Russia and the US.