Canada's Kinross Gold Corp yesterday said that it is scrapping development of its $1.3 billion Fruta del Norte (FDN) gold project in Ecuador after failing to reach an agreement with the government on tax issues.
Kinross Gold, Canada's third-largest gold miner, said that it will take a charge of about $720 million in the second quarter, of which about $700-million will be a non-cash charge.
''We've been at the negotiating table for two years,'' said, Kinross CEO, Paul Rollinson, ''Sometimes the best deal is the one you don't sign, and we believe that's the case here.''
The Toronto-based company said that the government of Ecuador had refused to renegotiate a 70-per cent windfall tax on revenue. It has declined to extend the company's licence beyond 1 August deadline, and allow a sale of the project.
After 1 August, the project will revert back to the Ecuadorean government.
Kinross said that it concluded that it is not in the interests of the company and its shareholders to invest further in developing the FDN gold project.
''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,'' said Rollinson.
''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,'' he added.
The FDN gold project came into Kinross portfolio when it acquired Aurelian Resources Inc in 2008 in a $602 million stock deal.
The move comes when the Ecuadoran government is the midst of drafting a new mining law in order to encourage investment in the country's mineral resources, estimated to be worth around $220 billion.