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Kinross Gold Corp (2)
Symbol K
Shares Issued 1,258,276,374
Close 2020-09-30 C$ 11.75
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Kinross Gold to acquire 70% of Peak for $93.7-million

2020-09-30 10:02 ET - News Release

Mr. J. Paul Rollinson reports

KINROSS TO ACQUIRE 70% INTEREST IN THE HIGH-QUALITY PEAK GOLD PROJECT IN ALASKA

Kinross Gold Corp. has entered into agreements to acquire a 70-per-cent interest in the high-quality Peak gold project in Alaska from Royal Gold Inc. and Contango ORE Inc. for total cash consideration of $93.7-million. Kinross will have broad authority to construct and operate the Peak gold project, with Contango retaining a 30-per-cent non-operating minority interest.

The Peak gold project is a relatively high-grade deposit with a large estimated resource base that is expected to commence production in 2024 as a low-cost, open-pit mine. The project, which is located approximately 400 kilometres (250 miles) southeast of the company's Fort Knox mine, is a low-risk tuck-in to supplement Kinross's existing Alaska operation. Kinross plans to process Peak gold ore at Fort Knox and utilize the existing mill and infrastructure to benefit both the project and the mine.

Highlights of the acquisition:

Adds another high-grade, low-cost development project to Kinross's portfolio (1)

  • Expect to commence production at the open-pit project in 2024, with total production of approximately one million gold equivalent ounces over 4.5 years at average mining grades of approximately six grams per tonne;
  • Preliminary all-in sustaining costs (2) estimated to be in the range of $750 per AuEq oz and initial project capital expenditures in the range of $110-million;
  • Expect to strengthen Kinross's medium-term production and cash flow profile;
  • Numerous exploration targets within Peak Gold's 675,000-acre (2,732 square km) land package to potentially increase mine life.

Low-risk project leverages Fort Knox mill, infrastructure and successful operating experience in Alaska

  • Processing ore at Fort Knox avoids mill construction and is expected to decrease execution risk, lower capital expenditures, drive attractive returns, and reduce the project's environmental footprint and permitting requirements.
  • Blending higher grade ore from the Peak Gold project with Fort Knox ore is expected to extend mill operation at Fort Knox, reduce overall costs and increase cash flow.
  • Leverages Fort Knox's successful 27-year history in Alaska, one of the world's top mining jurisdictions.

Project to benefit local communities, in particular the Upper Tanana Athabascan Village of Tetlin

  • Project expected to contribute to the state economy and provide additional employment opportunities and benefits.

"The relatively high-grade, low-cost Peak gold project is an excellent addition to our portfolio, as it allows us to leverage our existing mill and infrastructure at Fort Knox and strengthens our medium-term production and cash flow profile. In today's gold price environment, Peak gold is an attractive, high-margin project that is expected to generate robust returns," said J. Paul Rollinson, Kinross Gold president and chief executive officer. "The project is also expected to add to our strong record of socio-economic contributions to our host communities in Alaska, one of the top mining jurisdictions in the world."

Summary of the transactions

Kinross has entered into agreements to acquire 70 per cent of the Peak gold project, which is 40 per cent owned by Royal Alaska LLC, a subsidiary of Royal Gold, and 60 per cent owned by Core Alaska LLC, a subsidiary of Contango, for total cash consideration of $93.7-million.

Kinross has agreed to purchase 40 per cent of Peak Gold by acquiring Royal Alaska from Royal Gold for total cash consideration of $49.2-million. The company has also agreed to purchase 30 per cent of Peak Gold from Core Alaska for total consideration of $44.5-million, which includes $32.4-million in cash and shares of Contango purchased from Royal Gold. The cash received by Contango includes a $1.2-million prepayment reimbursement for a new royalty on Peak gold silver revenues. All conditions precedent to closing have been satisfied and the transactions are expected to close on or before Oct. 1, 2020.

Peak gold project overview

Located near Tok, Alaska, the Peak gold project is accessible by road and is near the Alaska Highway. The project is situated within the 675,000-acre (2,732 square km) mineral lease with the Village of Tetlin and is a high-grade skarn deposit that extends to surface.

Based on Peak Gold's 2018 preliminary economic assessment, the project has estimated measured and indicated mineral resources of approximately 1.2 million Au oz with a grade of 4.1 g/t, and an estimated inferred resource of 116,000 Au oz with a grade of 2.7 g/t.

The company has completed an internal analysis of the project, including building a preliminary block model and mine plan. Kinross's preliminary mine plan includes crushing ore at the open-pit project and trucking the material to Fort Knox's mill for processing. By utilizing Fort Knox's existing infrastructure, the mine plan does not require the construction of a mill or tailings facilities at the project site. Kinross expects to receive a management fee and toll mill Contango's 30 per cent of ore mined (3).

The company expects to blend the project's higher grade ore with Fort Knox's lower grade ore to reduce Fort Knox's average life of mine all-in sustaining costs (2) by approximately $70 per AuEq oz and extend the mill's operating life. Extending mill operation is expected to increase recoveries at Fort Knox, as displaced ore that was projected to be placed on the heap leach pads will instead be processed at the mill.

Kinross's preliminary estimates (1) for the Peak gold project (on a 100-per-cent basis), using a $1,200-ounce gold price, include:

  • A mine life of 4.5 years, commencing in 2024;
  • Total life of mine production of one million recovered AuEq oz at average mining grades of approximately six grams per tonne;
  • All-in sustaining costs (2) in the range of $750 per AuEq oz;
  • Initial project capital expenditures of $110-million.

The company plans to commence an infill, geotechnical and metallurgical drilling program to further develop the existing resource base. Kinross is also planning to focus on targets across the larger land package identified by previous sampling, mapping and geophysics. Initial permitting activities are expected to commence in parallel with the drilling program. Kinross expects to complete permitting and a feasibility study by the end of 2022. Project construction is expected to take approximately one year, with production planned to commence in 2024.

Kinross has completed substantial due diligence at the project, conducting site visits in 2019. The company has also held productive meetings with leaders of the Village of Tetlin, which has indicated its support for the project development plan. Kinross also plans to rename the project in consultation with the Village of Tetlin and looks forward to a productive and mutually beneficial partnership with the community.

"We look forward to the safe and responsible development of the project and the positive benefits it is expected to generate for our community," said Village of Tetlin Chief Michael Sam. "We also look forward to further building a relationship with Kinross, a company with a strong track record in Alaska, and are pleased to see further investment plans for the project."

Strong record of responsible mining and value generation in Alaska

Kinross's Fort Knox mine, located near Fairbanks, Alaska, has an excellent health and safety record and a long, successful history of responsible mining and environmental stewardship. In 2019, the National Mining Association recognized Fort Knox's safety performance with the Sentinels of Safety Award, the most prestigious safety award in the United States.

Fort Knox has strong relationships with local government and host communities and generates significant value for the state economy. The mine contributed approximately $300-million to Alaska's economy in 2019 through procurement, taxes, wages, community programs and donations, providing meaningful livelihoods for employees, opportunities for local suppliers and support to approximately 90 Alaska non-profits. Fort Knox operations supported 1,150 jobs in the Fairbanks North Star Borough in 2019, including 650 direct jobs with the mine, and conducted business with 350 Alaskan vendors.

Fort Knox's commitment to environmental stewardship is exemplified by its 27-year partnership with the Alaska Department of Fish and Game in managing a major environment restoration project in the Fish Creek valley. The project successfully restored 1.5 miles (2.4 kilometres) of the creek and neighbouring wetlands, safeguarding a 175-acre (71-hectare) freshwater reservoir that enhanced the fish habitat. Fort Knox also completed reclamation of its nearby True North deposit in 2015 and recently returned the land back to Alaska for future public use.

Advisers

Paradigm Capital is acting as financial adviser to Kinross, with Davis Graham & Stubbs LLP and Osler, Hoskin & Harcourt LLP acting as legal advisers on the transaction.

About Kinross Gold Corp.

Kinross is a Canadian-based senior gold mining company with mines and projects in the United States, Brazil, Russia, Mauritania, Chile and Ghana. Kinross's focus is on delivering value based on the core principles of operational excellence, balance sheet strength, disciplined growth and responsible mining. Kinross maintains listings on the Toronto Stock Exchange and the New York Stock Exchange.

                         PEAK GOLD MINERAL RESOURCE ESTIMATES*

                         Tonnes    Au grade   Au contained    Ag grade    Ag contained
                          (000s)       (g/t)          (koz)       (g/t)           (koz)

Measured                    473         6.4             97          17             254       
Indicated                 8,728         4.0          1,111          14           3,945      
Measured and indicated    9,201         4.1          1,208          14           4,199      
Inferred                  1,344         2.7            116          16             694       

* Estimates are on a 100-per-cent basis and based on Peak Gold's 2018 preliminary 
  economic assessment. Peak Gold's mineral resource estimates assumed a $1,400-per-ounce 
  gold price and $20-per-ounce silver price.

The PEA is preliminary in nature, and includes inferred mineral resources that are 
considered too speculative geologically to have the economic considerations applied to 
them that would enable them to be categorized as mineral reserves, and there is no 
certainty that the PEA will be realized.

(1) Kinross's preliminary estimates for production, grade, all-in sustaining costs and capital expenditures are calculated on a 100-per-cent basis and assumes a $1,200/oz gold price. The estimates and scope of the project may change following the feasibility study.

(2) Preliminary all-in sustaining cost estimates exclude corporate overhead costs. The metric is a non-GAAP (generally accepted accounting principles) measure and is not defined under international financial reporting standards. Refer to the "Reconciliation of non-GAAP financial measures" section in the company's Q2 2020 management's discussion and analysis.

(3) Toll milling to cover fixed and variable costs plus a profit markup.

We seek Safe Harbor.

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