Kinross Gold

VP Government Relations Kinross in Ecuador

By Silvia Santacruz

Washington D.C. September 10, 2009 – Exactly one year ago, in September 2008, Kinross Gold Corporation – the third-largest gold producer in North America – acquired Aurelian Resources and its “gold dinosaur” Fruta del Norte Project (FDN) with 13.7 million ounces of gold and 22.4 million ounces of silver. Since then, the world's eyes are fixed upon the Ecuadorian government’s negotiations with Kinross, because the major’s fate will define the Andean country's mining future.

Kinross Vice President in Ecuador Dominic Channer, who was re-appointed after the Kinross-Aurelian merger, granted Ecuador Mining News an exclusive interview during which he discussed the Canadian firm’s expectations regarding the creation of the National Mining Enterprise (NME), the new mining law and the company’s leadership in the Responsible Mining Council (CONMIN, for its Spanish acronym).

CONMIN was created as a strategy to overcome the setback that the mining sector suffered as a consequence of the April 2008 mining mandate, which halted the operations of all large-scale mining firms. The council’s main goal is to promote the benefits of a responsible mining industry, and dialogue with the government using one united voice. CONMIN has nine members: Kinross, IAMGOLD, Corriente Resources, and International Minerals are the four most active members, and Cornerstone Resources, Dynasty Metals, Ecometals Ltd., Salazar Resources, and Atlas Minerals are the junior partners.

Kinross in Ecuador employs a staff of 270 and expects to begin producing FDN in 2013. The “gold dinosaur” is still in the advanced exploration stage, and is ready to continue drilling and preparing its pre-feasibility study when operations resume. The Canadian corporation has operating mines in the United States, Russia, Chile and Brazil, and employs a global workforce of 5,500.

The NME was recently established by executive decree, and it will begin operations in three months. It will be, according to the MMP minister, “a kind of Petroecuador.” However, the state-owned oil company has operated with very poor environmental standards. How does Kinross view this governmental initiative?

The government acknowledges the environmental and social problems that oil development has caused. That’s why they want to write a new history in the country with clear conditions for the mining industry, before we resume operations. They are also concerned that the NME starts on the right foot. That’s why we, international firms, will be supporting the state-owned mining firm transferring our technology and training to the NME workers. And although some state mining enterprises are a bad example, in Botswana for instance, the state-owned mining company is a good example of policies and practices.

Are private companies under risk of expropriation with the creation of the NME?

Not at all. Under the new mining law, this activity can be performed by the state, by private companies and through [public-private] joint ventures. Thus, if a private firm wants to merge with the NME they can do so, but there is no obligation.

The mining mandate suspended only large-scale mining operations while small-scale and artisan miners – often informal, and the ones that pollute and pay low wages – are still working. Can large mining companies replace small ones?

Large scale mining won’t eradicate small-scale miners. Instead, there will be a state of coexistence between various scales of mining in the country. The government wants to legalize this [small-scale, artisan mining] activity with a new law specific to that sector, and remove all [non-sanctioned] informal activity. This initiative has our full support and the government’s commitment to provide the necessary resources to ensure compliance with this law. It is possible that the environmental requirements would be different for small-scale miners than for a large project, but the important thing is that this activity will be legalized.

President Rafael Correa, has been in power two and a half years, has just been re-elected for a new four-year term. Does this election signal international stability or, to the contrary, does the recurrent change of MMP ministers – four so far – signal uncertainty?

We have a very good impression of the new MMP minister Germánico Pinto, from our meetings as a company and as CONMIN. Canada’s International Relations Minister Stockwell Dade thinks similarly after meeting Mr. Pinto, during his official visit to Ecuador three weeks ago. We believe the MMP minister is very focused on the country’s new mining policy, and trust the government is getting closer to resuming our activities in coordination with other ministries.

One of international investors’ main concerns is the 70 percent windfall profits tax that currently applies to oil companies. Also, the 5 percent minimum royalty is already high by international standards. Does Kinross think it will get a fair deal with the Ecuadorian government when signing contracts?

The windfall tax has been rarely applied in other mining jurisdictions. And those that have applied it, have not done so for long. In Ecuador, the WFT is part of the tax legislation. However, we are still at a very early stage in negotiating FDN’s exploitation contracts. So, we still do not know exactly how this tax will affect us.

Do mining firms require exploration contracts?

No. The law says that once the government approves the regulations, mining concessions must be adjusted to the new law. That is, [firms must] renew water permits, and environmental impact and social consultations at each stage [exploration, exploitation, etc.]. In our case, at advanced exploration phase, we must evaluate the project financially, continue our feasibility study, and then we can negotiate exploitation contracts. We still have a long way to go, but other firms, like Corriente Resources, are closer to negotiating contracts with the state.

What CSR projects does Kinross in Ecuador have, how do they operate, and what impact will FDN have on surrounding communities?

FDN is settled in Zamora Chinchipe, in the Amazon, one of the country's poorest provinces. There, our CSR team works closely with the government, supporting their social policy. And with the [Education] Ministry teachers, we are helping our workers to complete their education. We want to educate them for three or four years until we begin operating our modern mine. But it is the Ecuadorian government that provides the training, and we just support them. Our ambition as a company is to develop a mine with the best standards – just like Kinross’s mines in other countries — with tremendous environmental responsibility, super responsible wastewater management, and ambitious CSR projects supporting the government’s social agenda.

Last year when Kinross acquired Aurelian, many retail investors complained that the price was too low. They were waiting for activities to resume within weeks but nonetheless, after 18 months, operations remained suspended. Does Kinross, as a much larger company, tolerate more political uncertainty than a junior like Aurelian?

It’s not a matter of size, but commitment. And Kinross acquired a huge commitment when it bought Aurelian. Alongside Kinross, waiting with the same degree of anxiety, are other firms that rely on the resumption of their activities. All of us have invested capital, personnel, time, and CSR programs. And while this waiting is longer than expected, is part of the country's mining policy development.