Kinross walks away from promising Ecuador project with Lundin shares sale

5.12.2019, 19:39 - eeppo

Canadian miner Kinross Gold (TSX:G) (NYSE:KGC) is selling its remaining 20.7 million shares in Lundin Gold (TSX:LUG), equivalent to a 9.2% stake, to the other two major investors in the Ecuador-focused company, in a deal valued at roughly C$150 million ($114m).

The buyers, a wholly-owned subsidiary of Australia’s Newcrest Mining (ASX: NCM) and the Lundin Family Trust, will see their interest in Lundin increase from 27% to 32% and from 23% to 27%, respectively.

Kinross said the move was part of its portfolio streamlining
strategy, which included last week’s sale
of its full precious metal royalty portfolio
to Maverix Metals (TSX:MMX).
It also noted that the transaction is expected to close immediately.

Lundin, worth C$1.7 billion, owns the Fruta del Norte gold-silver-mine in Ecuador, which it acquired from Kinross in 2014 for $240 million and which began production in November.

The Vancouver-based miner has been developing the asset for
almost two years, following a 2016 agreement with Ecuador’s government, something its previous
owner was never able to accomplish. The deal allowed Lundin to move ahead with
the project, located in the southeastern Amazon province of Zamora Chinchipe.

The underground gold and silver mine contains six of the
company’s 29 mining concessions in Ecuador and covers 70,000 hectares of land.
Discovered in 2006, Fruta del Norte is expected to produce almost 4.7 million
ounces of gold over a 15 year mine life.

Ecuador has gained ground as a mining investment destination over
the past two years, with top miners entering into joint ventures or investing
in juniors to gain exposure to projects in the country.

Anglo American (LON: AAL) also landed in the South American
nation through a deal with Canada’s Luminex Resources (TSX-V: LR). The company
plans to develop two copper and gold concessions there.

Currently, Ecuador’s emerging mining sector employs 5,000
people, but estimates the figure will rise to about 16,000 next year if
the country’s finances don’t take a turn for the worse.

The outlook is dubious, however, as the Congress rejected in
November a reform bill presented by President Lenin Moreno, which was part of a
$4.2 billion financing agreement with the International Monetary Fund (IMF).

“The inconvenient reality is that if Ecuador loses IMF
support, then they lose market access,” Siobhan Morden, head of Latin America
fixed income strategy at Amherst Pierpont Securities, wrote in a note.

Moreno’s measures to comply with the IMF program have been
criticized by the wide range of topics included — from student debt to mining
policy and central bank autonomy.