Beating Tough Odds On Top Of The World

Kinross Gold Corporation of Toronto is no newcomer to Russia, with well over a decade of experience gained through its earlier interests in the Kubaka and Julietta mines. Today, the company’s attentions have turned to the Chukotka region in Russia’s far east, home of the new Kupol gold and silver mine -one of the major drivers behind Kinross’ expanded production and lower cost profile.

Kinross has a 75% interest in Kupol, with the local Chukotka government holding the remaining 25% interest. The mine is located north of the Arctic Circle and the nearest town is 220 kms away.

Winter lasts more than eight months and the average annual temperature is just -13 Celsius, dipping as low as -58 Celsius in mid-winter.

Needless to say, the isolated site, which had no existing infrastructure, was a tough place to build a mine. One major challenge was getting equipment, materials and fuel to site, which must be ordered two years ahead of need. Materials are shipped to Pevek, a summer port north of the Arctic Circle which is only open for about three months a year.

Every year, from November to January, Kinross builds a 360-km long winter road to access and deliver supplies. Construction of the road can only be done when temperatures are below minus -25 Celsius. Due to seasonal changes, the road is only used from late-January to the end of April. In 2008, 3,000 container units, 60,000 tonnes of supplies and 25,000 tonnes of diesel fuel were delivered. The trucks made 1,944 trips, travelling over 1,566,864 kms. During the remainder of the year, Kupol is only accessible by helicopter and fixed wing aircraft.

Despite these major logistical challenges, Kupol was built in a remarkably short time. Construction began in 2005, and was well underway when Kinross acquired Kupol as part of the Bema Gold acquisition in February, 2007. First gold was poured in May, 2008 and official production commenced the following month of June, becoming the first of Kinross’ three new projects to start production in 2008.

Kinross’ share of Kupol production in 2008 was 469,907 gold equivalent ounces at an average cost of sales per gold equivalent ounce of $220, making it one of the world’s lowest-cost gold producers. In the first quarter of 2009, the company’s share of production at Kupol was 192,842 gold equivalent ounces, including 169,292 ounces of gold and 1.7 million ounces of silver. Gold grades averaged 24.91 grams per tonne during the quarter, and silver grades averaged 286.7 grams per tonne.

Kupol consists of an open pit and underground mine and conventional mill, with a capacity of about 3,000 tonnes per day. The milling process consists of primary crushing and a SAG/ball mill grinding circuit, and includes conventional gravity technology followed by whole ore leaching. Merrill-Crowe precipitation is used to produce gold and silver dor bars.

Gaining the cooperation and trust of the government has been key to Kinross’ success in Russia over the years. in the case of Kupol, Kinross is bringing much-needed investment and jobs to a remote and under-developed region.

The mine is one of the few significant employers in the region, representing over $700 million in new investment, and 1,200 new jobs. Kinross has also established a development fund -the Kupol Foundation -to help local communities participate directly in the economic opportunities associated with the mine in areas such as education, health care and small business development. A representative of the Chukotka Regional Association of Indigenous Minority Peoples sits on the Kupol Foundation, and no less than 30% of the funds allocated will support projects and initiatives for the three indigenous regions associated with Kupol.

Due to its remote location, Kupol employees typically follow a rotation schedule: employees from the Russian Far East are on a “four weeks in, four weeks out” schedule, while those from farther away have special “six weeks in, four weeks out” arrangements. The camp itself cost more than $40 million to build, and its amenities are impressive. Employees are provided with excellent sleeping accommodations, top-quality meals, a fully equipped workout room, full-size gymnasium, pool tables, library, prayer room, televisions, a video library, and more.

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QUICK FACTS

LOCATION: Chukotka Region, Far East Russian Federation

EMPLOYEES: Approx. 1,200

LANGUAGE: Russian

NEAREST MAJOR CITY: Bilibino, 220 km west-northwest; population 6,000

OWNERSHIP: 75% Kinross, 25% Chukotka Government

MINING: Open Pit / Underground

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Project TImeline

2005 Permitting and engineering underway by Bema

December 2006 Mill building complete

February 2007 Kinross acquires Bema

March 2007 Wartsila generators, the project’s heaviest loads, are trans ported to site

May 2007 Site construction 60% complete

April 2008 The last of 60,000 tonnes of supplies and 25,000 tonnes of diesel fuel are delivered via the winter road from Pevek

May 2008 First bar of gold-silver dor produced

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