May 5, 2010 / 4:41 PM / in 10 years

Kinross shares fall following Red Back deal

TORONTO (Reuters) - Kinross Gold’s (K.TO) shares fell 4 percent on Wednesday, as the company’s purchase of a 9.4 percent stake in Africa-focused Red Back Mining RBI.TO drew a mixed reaction from analysts.

Kinross announced the C$600 million ($583 million) purchase — which will give the miner its first African exposure since it exited some assets there about five years ago — as it reported a first-quarter profit late on Tuesday that met market expectations.

Red Back’s key assets are the Tasiast mine in Mauritania and the Chirano mine in Ghana. Its shares were up 59 Canadian cents, or 2.4 percent, at C$25.05, rising just above the deal’s C$25 purchase price.

Analysts said the Red Back deal was dilutive to Kinross shares in the short term as it consumed cash and provided no direct production, but they were split on the longer-term impact on the miner, which has previously focused on the Americas and Russia.

Haywood Securities analyst Kerry Smith said the purchase was positive for Kinross, noting West Africa holds plenty of gold and is significantly underexplored.

“Should all go as planned at Tasiast, and Red Back is able to reach critical mass, we envision Kinross pulling in the rest of the shares and entering Africa in a more significant way,” he said in a note.

But Greg Barnes of TD Newcrest said the rationale for the investment was unclear to him.

He said an attempt by Kinross to acquire the rest of Red Back would be dilutive “on all metrics”.

“We do not believe that investors are likely to view the purchase of (Red Back) shares purely for investment purposes as a sound strategy for a gold mining company,” he said.

He cut his rating on Kinross to “hold” from “buy”.

Kinross shares were down 78 Canadian cents, or 4.1 percent, at C$18.27.

($1=$1.03 Canadian)

Reporting by Cameron French; editing by Rob Wilson

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