TORONTO (miningweekly.com) – Canadian miner Kinross Gold on Monday announced that it would not continue with the development of the $1.3-billion Fruta del Norte (FDN) project, in Ecuador, saying it was unable to agree with the government on certain key economic and legal terms which were to balance the interests of all stakeholders.

The company said it had informed the Ecuador government of the decision and had asked for its cooperation in ensuring an orderly transition that respected both parties’ interests.

Kinross said that, after more than two years of negotiations on exploitation and investment protection agreements for the project, and despite pending legislative amendments to the mining and tax law regime in the country, it had concluded that it was not in the interests of the company and its shareholders to invest further in developing FDN.

"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.

“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," Kinross CEO Paul Rollinson said.

The gold miner added that, despite Ecuadorian law permitting an extension of the economic evaluation phase of the project for up to 18 months, or the suspension of the start of the exploitation phase, either of which would have enabled negotiations to continue beyond the current August 1 deadline, the government had indicated that it would not agree to such an extension or suspension.

Any possible sale of the project was currently subject to the prior approval of the government, and the government had also indicated it would not support efforts by Kinross to solicit a potential new partner, or a buyer. As previously disclosed, when the current economic evaluation phase of the project expires on August 1, the La Zarza concession, which contains the entire FDN mineral resource, would revert to the government.

The company would now assist its employees and local stakeholders during a transition period as it reduces its level of activities in Ecuador in the coming months.

Kinross' decision to stop the development of FDN would result in a charge of about $720-million in the second quarter. Of this, about $700-million was expected to be noncash, reflecting the company's entire net carrying value of the FDN project, and about $20-million in accrued severance and closure costs.

Kinross took a $3.2-billion charge related to its Tasiast mine, in Mauritania, and the Chirano gold mine, in Ghana, both of which were acquired in the company's $7.1-billion takeover of Red Back Mining in 2010. It previously wrote down $2.94-billion in goodwill related to the two mines.

Kinross also announced on Monday that it had extended the maturity dates of its $1.5-billion revolving credit facility and $1-billion term loan. The credit facility was extended by one year to August 10, 2018, and the term loan was extended by two years to August 10, 2017.

The term loan had no mandatory amortisation payments and with these extensions having been completed, the company had no debt maturities before 2016 and only regular principal amortisation payments on the remaining $170-million balance of the Kupol term loan.