Alaska properties swamp 2005 bottom line

Kinross Gold Corp., owner of the Fort Knox gold mine 25 miles northeast of Fairbanks, posted a loss for 2005 of $216.0 million, including a $154.3 million deficit in the fourth quarter. The Toronto-based gold producer blamed the bulk of its fourth quarter loss on non-cash impairment charges of $147.2 million, including a charge of $141.8 million related to Fort Knox.

During a thorough review of its assets and investments in 2005, Kinross said it examined the Fort Knox operation to determine the impact of higher operating costs as a result of higher electricity costs, increased fuel prices and lower grade ore at the True North deposit.

The company elected to reclassify its estimated reserves for the True North and Gil deposits as resources and withdrew from the Ryan Lode project altogether. Kinross said these factors contributed to the $141.8 million non-cash impairment charge it took in the fourth quarter.

An impairment charge is used to reflect a decrease in the carrying value of a company's assets if that value dips below its fair market value.

Kinross said it used the same impairment methodology as in 2004, using nominal prices and cost assumptions reflecting inflation and currency impacts. The gold price assumptions used were based on gold price forecasts by an independent external research firm as well as other external market data, the company added.

Revenues of $725.5 million for 2005

Kinross reported revenue of $190.0 million in the fourth quarter and $725.5 million for the year, up 9 percent from 2004 revenue, due mainly to higher gold prices.

The company said it achieved planned production of 378,533 gold equivalent ounces in the fourth quarter and 1,608,805 gold equivalent ounces for the year. Gold equivalent sales were 389,037 ounces in the fourth quarter and 1,627,675 ounces for the year with a cost of sales per ounce of $285 per ounce for the fourth quarter and $275 per ounce for the year.

Kinross said gold equivalent ounces sold last year were similar to sales in 2004. Production and ounces sold decreased by 3 percent at Fort Knox, due to lower grade and mill throughput, which was partially offset by a higher recovery. However, this was partially offset by increases at other operations, the company said.

Lower grade due to True North suspension

The lower grade in 2005 was the result of the suspension of production at the True North deposit in 2004. The lower mill throughput was the result of processing the harder Fort Knox ore compared with the blended ore from True North and Fort Knox for much of the prior year.

Between 2004 and 2005, cost of sales rose largely due to industry-wide factors such as higher costs of fuel, power, labor and other production costs. In addition, weakening of the U.S. dollar increased costs at Kinross mines not located in the United States. About half of Kinross' production and more than 60 percent of its costs are based in U.S. dollars, which has helped to insulate the company from rising costs related to foreign exchange.

Kinross plans to produce 1.44 million ounces of gold equivalent in 2006, or about 12 percent less than its 2005 output, at cost of sales of $285 to $295 per ounce. Production at Fort Knox for 2006 is forecast to be lower than 2005, with improved recovery rates expected to be offset by lower grades, the company said.