Kinross seen priced for takeover, but hurdles high

Sun Mar 18, 2012 11:07am EDT
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By Pav Jordan and Euan Rocha

TORONTO (Reuters) - Cost overruns and a massive write-down have knocked Kinross Gold's stock so low that some bankers see it as Canada's biggest potential takeover play, though obstacles to a bid for the senior gold producer may be too big to surmount.

Kinross, the world's seventh-largest gold miner, owns some huge, largely unexploited assets spread across four continents, making it an appealing target for bigger players who are always on the hunt for deposits to replenish their reserves.

Despite a huge reserve base its stock, which traded for nearly C$19 at the start of 2011, closed at C$9.90 on Friday as mounting concerns about the cost of developing its flagship project sapped investor confidence.

"We haven't seen anyone make a move on Kinross yet, but to me, I would think that for anyone who wants a company with a lot of growth assets, this makes a lot of sense," said Stifel Nicolaus analyst George Topping. "It's the cheapest senior by a long shot."

Bankers point to Barrick Gold and Goldcorp, Canada's top two gold miners, as companies with the means to consider an acquisition. U.S.-based gold mining giant Newmont Mining Corp was also named as a possible buyer.

On an in situ basis, the proven and probable gold reserves of Kinross are being valued by the market at less than $200 an ounce, well under Barrick's reserves at some $325 per ounce and even Newmont and Goldcorp at about $275 and $580 an ounce. Although this does not factor in capital and operating costs, it highlights the appeal for potential bidders.

At the BMO Global Metals and Mining Conference in Hollywood, Florida, last month, the future of Kinross was the subject of much speculation, from the meeting rooms to the bars.

Kinross Chief Executive Tye Burt got the ball rolling early, saying the company may consider selling its 50 percent stake in the Crixas underground gold mine in Brazil and its 25 percent stake in the Cerro Casale gold-silver-copper project in Chile.   Continued...