Sunday, April 11, 2010

Kinross Gold Corporation meets Ali Baba on the Hill of the Souls

Kinross Gold Corporation meets Ali Baba on the Hill of the Souls

By Cylene Gama, from Paracatu-MG, Brazil, April 11, 2010

In the tale of ‘Ali Baba and the Forty Thieves’ the treasure is in a cave, the mouth of which is sealed by magic. It opens on the words ‘Open Sesame’, and seals itself on the words ‘Close Sesame’.

Canadian Kinross Gold Corporation is longing to put its craws on a treasure hidden in the Hill of the Souls at Paracatu, northwestern Minas Gerais State, Brazil. However, the Hill is sealed by a malediction long known by the Bacuen Indians, also known as the ‘Tapuias’. The Hill of the Souls was sacred for the Bacuen who believed that disturbing the hill would cause it to release evil souls.

But Kinross people do not want to believe in ancient maledictions. As in the Arabic tale, Kinross also found its own magic words to open the way to its overtly illegal Paracatu mining project down the public permitting pipeline in Brazil. The magic words ‘facilitation payments’ are written in Kinross’ ‘Code of Ethics in Business’.

As put by Transparency International ‘facilitation payments’ mean ‘corruption’ and Kinross makes it public in its ‘Code of Ethics in Business’, implying ‘facilitation payments’ are due to government authorities in order to facilitate businesses in foreign countries.

Bottlenecked twice by State and Federal lawsuits which prevented Kinross to build up the world’s largest toxic tailings impoundment on top of Paracatu’s oldest drinking water source, the mining company responded by hiring the shortly resigned Secretary of State of Minas Gerais, Wilson Brumer in May, 2009.

The relationships between Kinross and Brumer date back to the time when Kinross bought shares in the Paracatu mine from Rio Tinto and Brumer was serving as a State Secretary in Minas Gerais, Brazil.

Brumer´s appointment as a Kinross Director in May 2009 has been interpreted as Kinross desperate move to place its most important Brazilian operation in the hands of someone with ‘easy transit and flow’ within Brazilian government offices. At that time, Kinross’ Paracatu mine manager Jairo Leal claimed that the company could close its doors if it did not get the governmental permits.

At the end, Kinross did manage to get its illegal permits seemingly legalized in August 2009, in middle of a corruption plot which is currently under investigation by the Public Ministry of the State of Minas Gerais. It is hard to tell whether Kinross’ success in getting the permits is due to Brumer’s efforts. However, it is beyond doubt that Brumer’s track record in selling solid Brazilian public assets to foreign groups at bargain prices matches Kinross’ expectations and ethics in business.

In 2006, Kinross finished the acquisition of all Paracatu mining rights from Rio Tinto for just 280 million dollars - a bargain as described by Brazilian geologist Eupidio Reis, surprised by the low valuation of the largest Brazilian gold mine reserve estimated at some 16 million ounces, equivalent to more than 60% of Kinross’ legally declared gold mine reserves. Eupidio Reis simply could not understand how the Paracatu mine could have been sold so cheap when estimates pointed to 10 billion dollars.

What seemed to be a bargain to the Toronto white collars is turning out to be a real nightmare. Brazilian Medawar Institute scientist Sergio Dani explains that the Paracatu gold mining project has been poorly managed from its beginning, as early as in 1987.

However, Kinross invested a half billion dollars to upgrade this mining project after full acquisition from Rio Tinto in 2006. ‘Kinross has made more evident the succession of mistakes and corruption involved in this mining operation’, said Dani. ‘The hardrock turned out to be harder, the gold grades the world’s lowest, and the environmental and socio-economical damages and liabilities are visible to the naked eye’, he concludes (see and

In order to explore the world’s lowest grade gold ore (0.4 g/ton) the mining company competes with the local population for precious drinking and irrigation water. Kinross plans to dispose of one billion tons of toxic waste into a gigantic tailings dam on top of a water head meant to supply drinking water for 80 thousand people.

Frequent blasts at the mining site meant to crack the hardrock are also cracking buildings in the historical 18th century city. Technical difficulties have prevented the mining company meeting economical and financial goals. ‘Kinross financial discipline’ is mostly obtained by exploiting labour - increasing working hours and maintaining low salaries - and failing to account socio-environmental liabilities.

The Paracatu mine ore is arsenopirite which releases arsenic, sulphuric acid and other pollutants into the environment, when the ore is milled to obtain gold. Arsenic is the most potent environmental cancer causing agent known and sulphuric acid permeates and contaminates creeks and underground water.

Kinross’ liabilities in Paracatu outweigh the value of its gold reserves - indeed bad news for investors and stockholders. A lawsuit proposed by the Acangau Foundation in August 2009 estimates the damages caused by the mine expansion project at some 21 billion dollars over thirty years of open-cut hardrock mining in Paracatu. These estimates equal twice the value of the Paracatu mine gold reserves.

Liabilities estimates are based on EPA (Environmental Protection Agency of the USA) studies on socio-economical costs related to environmental contamination by arsenic, and on data from Kinross itself.

One questions whether a stockholder would jump into an adventure of such a known great risk? And how much does a Kinross stockholder know about the size of the risk he or she is buying?

Kinross goes to great pains to hide its own mistakes and tries to disqualify the scientific community - as happened in 2007 when Kinross disqualified an independent report on the Paracatu mine expansion project III, and simply ignored a strategic evacuation plan. During a public audience in 2007, irritated Public Prosecutor Serrano Neves pointed out to a Kinross director that the Brazilian people ‘won´t tolerate that a foreign company labels us as fools or idiots’.

‘Kinross Paracatu mine is stuck in stone age’, says Sergio Dani. ‘The gigantic liabilities increase the fly-by-night risk’, he adds. ‘It comes as no surprise that Wilson Brumer may have initially refused an invitation to join Kinross, as announced by the Belo Horizonte ‘O Tempo’ newspaper. He is reported to having said he would prefer to carry on with his own businesses. It could have being just part of the deal. When risks and challenges are too big, there is room to refuse dirtying hands for too cheap’, concludes Dani.

Brumer´s putative refusal to promptly accepting a seat on the Kinross Board opened space for speculations. Brumer had worked for Billiton, the first owner of the Paracatu mine. Brumer led his support to the Rio Tinto x Kinross mine expansion project when he was serving as Secretary of the Minas Gerais State in the period 2003-2007. He did not need to say ‘no thanks’ at the time.

Brumer ended up accepting the invitation to become a Kinross Board member in May 2009. It must have been irresistible. No new Kinross director makes less than US$100,000.00/year plus fringe benefits and most likely some perks. Kinross CEO Tye Burton received over 10 million US dollars in 2008 in salary and bonuses. It is hard to imagine if Brumer would get close to it carrying out his own businesses in Brazil. It is left to the imagination what would Brumer really have dealt with Kinross.

Will Brumer work for the expansion of the Kinross Paracatu mine, or will he help Kinross sell this controversial mine, as Billiton and Rio Tinto did at a time when the mine did not appeared so controversial?

Billiton and Rio Tinto won with Brumer in the past, but the situation appears to have changed for worse with Kinross. In February 2010, Kinross announced ‘ramp up problems’ in the Paracatu mine expansion, in an attempt to justify lower than expected results.

Soon afterwards it is heard that an unforeseen mill has to be bought and installed to cope with the Paracatu hardrock.

What might Kinross have done wrong in the Hill of the Souls? Have Bacuen’s evil souls been released? Maybe it is time for Kinross to learn from Ali Baba, say: ‘Close Sesame’.

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