Kinross' Paul Rollinson and after the gold rush

Section:

By James Wilson
Financial Times, London
Monday, May 23, 2016

http://www.ft.com/intl/cms/s/0/65aac95c-0c6c-11e6-b0f1-61f222853ff3.html

When Paul Rollinson took over as chief executive of Kinross Gold four years ago the end was in sight for the biggest gold boom in history -- and for some of the people who were part of it.

After rising 500 per cent in a decade, the market price of the precious metal had peaked. In the rush to exploit the boom, mining investments and costs had spun out of control.

Investors in gold miners such as Kinross, which had lavished $11bn on acquisitions in six years and was already writing off part of that spending, were in revolt. Tye Burt, Mr Rollinson's predecessor, was among a score of mining chief executives to lose their jobs.

... Dispatch continues below ...



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It was "the end of a champagne era", recalls Mr Rollinson. "Everything was going up, up, up, forever and ever -- and then I got the back half of the mountain, where it has been down, down, down.

"This has been the challenge -- running a business as you transition from one phase of the market into another," he says on a visit to London. After a long trip to see investors in Asia, he is on his way to a gold mining conference in Switzerland. It is a gruelling schedule but he is looking forward to dinner that evening with one of his daughters, who works in the UK capital.

Negotiating the descent has not been easy for Mr Rollinson. In his first week in the job he halted plans for the expansion of its Tasiast mine in Mauritania, the flagship development for Kinross. The project was the centrepiece of a $7.1bn acquisition of Red Back Mining in 2010, Kinross's largest deal.

After ensuing writedowns on Tasiast, the Canadian company was the first large gold miner to scrap its dividend: "That is one where you send the release out and want to crawl under your desk," recalls Mr Rollinson in his laconic drawl.

Another project in Ecuador, Fruta del Norte, was sold for much less than it had cost during the boom years; and when tension flared between Russia and the west over Ukraine, Kinross, the largest foreign investor in Russian mining, faced criticism over its strategy.

Mr Rollinson also had to fight to prove that his appointment was the change that Kinross needed.

As the miner's previous head of corporate development, and before that as an investment banker who advised the company on some deals, Mr Rollinson admits he might have seemed to investors like more of the same as they had had before. He had been involved in some of the decisions investors had criticised. Mr Burt was also previously a banker.

"On paper you might go, 'Here's another banker ... here we go again'," he says. "We just got our heads down."

Four years on, his transition from banker to miner seems to suit both Mr Rollinson and Kinross. The miner's shares have doubled in the past 12 months. In March, Mr Rollinson was at last able to unveil a definitive plan to develop Tasiast at a much lower cost.

And his stewarding of spending meant Kinross had the cash to snap up assets in the US from Barrick Gold, its larger rival, which helpfully reduced Kinross's overall exposure to higher-risk countries.

Not least, Mr Rollinson, who looks the image of a tough miner but is softly spoken, is at last having some luck with the gold price, which has risen since the start of 2016. "It is hard to believe we would all be high-fiving when gold got back to $1,200 an ounce but we certainly are, and it seems to be holding in there pretty firmly," he says.

Mr Rollinson has dual nationality: He was born in the UK but grew up in Canada, where his father worked in mining. He studied geology, and started his working life in Canada's wide open spaces. "I was living in the wilderness all year round in a tent and I had some amazing experiences. It was my love of the outdoors that got me into this in the first place."

But a key to his career may have been the finance classes he took while completing a postgraduate degree in mining engineering. On graduating he went into mining banking and a career in a succession of investment banks. He advised Kinross before Mr Burt asked him to join the miner in 2008.

"My intention was always to get back into mining ... that is ultimately where my passion is," Mr Rollinson says.

What has helped his time at Kinross, he says, is that while he came from banking he also had plenty of technical mining knowledge. As he puts it: "I can speak a few languages -- geology, mining, corporate finance." Many miners lost sight of some mining basics, such as the importance of asset quality, during the go-go years: Mr Rollinson says he has brought 70 technical staff into Kinross, adding that much of their job is to argue why projects should not be done, rather than rush them through as fast as possible.

"I call them The Terminators," he says. "Every time you look at an opportunity -- it is like an ice cube. The minute those guys get hold of it, it starts melting. It is 'Forget it -- take that out -- that's aggressive' ... those are the guys that matter."

Stopping things has been a big feature of Kinross under Mr Rollinson. He describes the original project to expand Tasiast as like a plan for a house that was increasingly difficult to afford to build: today's is a smaller and cheaper project. "Instead of building new, we are renovating," Mr Rollinson says.

The original project could have hurt the company, he says. "What scared me was [that] we would get it half built in that overheated environment, over budget, and we might put ourselves in some jeopardy." Not to put so much at risk was, he says, "a pretty important lesson for me".

Another lesson has been experience of Kinross in Russia, bringing Mr Rollinson reluctantly into the political arena. At the height of tension with Moscow over Ukraine in 2014, Canada's government tried to persuade business leaders, including Mr Rollinson, not to attend an economic forum in St Petersburg.

"That was tough but we had to say -- we have employees, we have stakeholders, we have shareholders, we don't want to get involved in politics, and with respect we intend to participate. And we did," says Mr Rollinson.

Kinross has a seat on Russia's Foreign Investment Advisory Council, alongside the likes of BP and Siemens. "We have been in Russia for more than 20 years ... we are 98 per cent Russian. We are employing and training Russians," says Mr Rollinson, while noting that Kinross's mines, in Russia's far east, are geographically closer to Toronto than they are to Moscow.

Reluctantly drawn into talking about Kinross's past deals, and his role in them, Mr Rollinson says many have worked out well and points out that the most criticised, the Red Back Mining acquisition, was voted through by shareholders.

Now he prefers to look forward. Kinross last year acquired a US mine in Nevada from Barrick, the world's largest gold producer by volume, and the gleam in Mr Rollinson's eye suggests he believes he has got a good deal.

Together with the resolution of the saga over Tasiast's expansion, he says Kinross now has "good momentum."

"People are feeling good about the business. It's been a slog, I can't tell you it hasn't -- it's been hard work. But people are seeing the fruits of their labour ... what we have to do is keep our focus and keep working hard."

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