Kinross Gold (TSX: K; NYSE: KGC) has increased the projected capital cost of its Lobo-Marte gold project in Chile by nearly two-thirds to $1.8 billion (C$2.5 billion), while still estimating a post-tax net present value of $4.3 billion.

The project is located 160 km east of Copiapó, the capital of Chile's Atacama region, and 50 km from Kinross' La Coipa and Maricunga mines. Chile is the world's largest copper producer and a established mining jurisdiction, but water scarcity in the arid Atacama has increasingly shaped project design and permitting timelines for gold and copper miners alike. Kinross says Lobo-Marte is expected to produce about 350,000 oz. of gold per year for 15 years at all-in sustaining costs of about $1,000 per ounce. At a gold price of $4,100, the company estimates an internal rate of return of 26% and a payback period of 2.3 years.

"We completed a high-level refresh of our feasibility study economics to account for inflation since 2021 and further enhancements of the execution strategy," Chief Technical Officer Will Dunford said on Thursday's earnings call. "The combination of the low mining cost, low processing cost, high heap leach grade and the resource size are what make this project a central focus in our grade enhancement strategy."

Lobo-Marte is expected to account for almost one-fifth of Kinross' current annual output and extend the company's Chilean operations into the 2040s. Mining analyst Tanya Jakusconek said in a Thursday note that the capital estimate came in 10% below Scotiabank's model and that projected mine costs were about 30% lower, making the update slightly better than expected. BMO Capital Markets lowered its target price on Kinross to C$49 from C$51 after raising its Lobo-Marte capital estimate, but kept an outperform rating and said the project still supports significant valuation upside.

Kinross shares fell 2.2% to C$31.99 by late Thursday morning in Toronto.

Cost increase

Dunford said inflation accounted for more than $400 million of the increase from the 2021 estimate. Mining projects worldwide have faced sustained cost pressure since the pandemic, driven by higher labour, energy and equipment expenses, and Kinross's revision mirrors a broader industry trend of companies revisiting pre-2022 feasibility estimates. Kinross added about $100 million after deciding to purchase mining equipment rather than reuse machinery from its nearby Maricunga project, which it now wants to keep available as a separate development option.

Changes to construction planning and higher indirect costs make up much of the remaining increase. Kinross also raised the project contingency to 19% from 14%, saying four years have passed since it completed the detailed estimates behind the original study.

The revised estimate includes $1.1 billion in direct spending and about $700 million for indirect costs and contingency. Process facilities are the largest single cost item at $490 million, followed by $410 million for site work and infrastructure.

Kinross said the update refreshes the economics of the 2021 feasibility study rather than replacing the mine plan. It kept the previous pit designs and reserve base to avoid delaying an environmental application that was built on years of baseline work. The company plans to provide a firmer cost estimate after detailed engineering is completed.

The project economics remain solid under a lower gold-price scenario. At $3,500 gold, Kinross estimates a $3.2 billion net present value, a 22% return and a 2.7-year payback.

Mine plan

Lobo-Marte contains proven and probable reserves of 160.7 million tonnes grading 1.3 grams of gold per tonne, for 6.73 million contained ounces. That grade is notably higher than typical heap-leach gold operations, which often process ore below 1 gram per tonne, strengthening the project's projected margins. Indicated resources total 120.8 million tonnes grading 0.71 gram per tonne for 2.75 million ounces, while inferred resources stand at 32.9 million tonnes grading 0.63 gram per tonne for 670,000 ounces.

Kinross plans to mine the Marte and Lobo open pits in sequence using trucks and shovels. The operation would process 161 million tonnes of ore through a three-stage crushing and heap-leach plant rated at 35,000 tonnes per day.

The company forecasts gold recovery of 69%, a waste-to-ore strip ratio of 2:1 and peak mining of 50 million tonnes a year. Processing is estimated at $12.30 per tonne, while mining costs are expected to be $3.25 per tonne. Kinross said the relatively high grade for a heap-leach operation is a major factor in the project's estimated margin.

The site would require a 75-km access road, a 60-km power line and a 40-km pipeline connected to a well field that supplies Kinross' La Coipa mine. The design calls for renewable grid power, electric shovels and covered conveyors to reduce dust.

Growth scope

The initial plan would recover 4.6 million ounces, leaving much of the project's resource outside the reserve pits. Kinross designed the 2021 shells at a gold price of $1,200, well below the price used in the refreshed economics.

Both deposits remain open at depth, and indicated and inferred resources outside the pits could support wider shells and a longer mine life. Kinross said it plans to defer that work until after production begins because the permitted base plan already supports mining into the 2040s.

Permit path

Chile's Environmental Assessment Service accepted Lobo-Marte's environmental application for review in April. Kinross expects the review process to take two to three years, followed by construction near the end of the decade and first production in the early 2030s. Chilean environmental reviews for mining projects in water-stressed regions have drawn heightened scrutiny in recent years, making the baseline studies underpinning the application a critical factor in the approval timeline.

The company said it expects to fund the three-year build from operating cash flow. As of June 30, Kinross held $2.7 billion in cash, $1.9 billion in net cash and about $4.4 billion in total liquidity.

Great Bear update

Kinross also reported progress elsewhere in its portfolio. At Great Bear, near Red Lake, Ont., the company completed the first blast for its exploration decline on Monday as surface construction reached 93%.

Detailed engineering for the main project is about halfway complete, major equipment contracts have been awarded and permitting remains on track for first production in late 2029.

Quarterly results

On Wednesday, Kinross reported adjusted second-quarter profit of 71¢ per share, ahead of Scotiabank's estimate of 66¢ per share. The bank said the difference was due to lower taxes and described the quarter as "neutral" for the shares.

Kinross generated $726.8 million in attributable free cash flow during the quarter as a 37% rise in its realized gold price offset lower production and higher costs.

Output fell 4% from a year earlier to 477,879 oz. of gold and 761,479 oz. of silver, while all-in sustaining costs rose 22% to $1,821 per ounce.

The company maintained its forecast to produce 2 million attributable gold-equivalent ounces this year, with silver converted to gold using average spot prices, at all-in sustaining costs of $1,730 per ounce.