UPDATE 2-Canada's Kinross cancels Ecuador gold project

Mon Jun 10, 2013 7:41pm EDT
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By Allison Martell

June 10 (Reuters) - Kinross Gold Corp said on Monday it is halting development at its Fruta del Norte gold project in Ecuador after failing to reach an agreement with the government over a windfall tax on revenues.

Chief Executive Paul Rollinson said Ecuador had refused to budge on the 70 percent tax, and had indicated that it would not approve a sale or extend the company's license beyond an August 1 deadline.

"It's been a tough negotiation," Rollinson told Reuters. "Sometimes the best deal is the one that you don't sign, and that seems to be the case here."

The move is a blow to Ecuador, where the government is drafting a new mining law meant to encourage investment. Ecuador does not have a significant mining sector, but it is largely unexplored and could have major deposits.

Kinross acquired Fruta del Norte with its C$1.2 billion ($1.2 billion) friendly takeover of Aurelian Resources in 2008, and has called it "one of the most exciting gold discoveries of the past 15 years."

But political risk was a factor right from the beginning - Kinross only bid after fears about the investment environment sent Aurelian's shares down 93 percent over about four months.

President Rafael Correa, who won re-election in February, is keen to cut his country's dependence on oil exports. After his election, Correa told Reuters he expected to sign a contract with Kinross within six months.   Continued...