September 15, 2010 / 2:27 PM / in 7 years

UPDATE 2-Kinross-Red Back deal approved by shareholders

* Kinross investors approve equity issue for Red Back deal

* Majority of Red Back shareholders approve acquisition

* Kinross, Red Back shares up (Recasts, adds details, CEO comments; in U.S. dollars unless noted)

By Euan Rocha

TORONTO, Sept 15 (Reuters) - Shareholders of Kinross Gold K.TO and Red Back Mining RBI.TO have approved the $7 billion acquisition of West Africa-focused Red Back, a deal that is set to transform Kinross and create one of the world’s largest gold miners.

At a special shareholder meeting on Wednesday, a majority of Kinross investors approved the issuance of shares and warrants to fund the company’s acquisition of Red Back.

Kinross said shareholders controlling 66.5 percent of the votes cast voted in favor of the resolution to issue equity, while 33.5 percent were opposed.

Separately, Red Back said 99 percent of the votes cast at its shareholder meeting were in favor of the deal. The acquisition, which is expected to close on Friday, will result in Red Back shareholders owning roughly 37 percent of the combined company.

The deal transforms Kinross from an intermediate player into one of the world’s top five gold miners by output. Red Back’s Chirano mine in Ghana and its Tasiast mine in Mauritania also give Kinross a foothold in Africa, allowing it expand outside North America, South America and Russia.

“We are going be at 2.2 million ounces of (gold) production this year. Adding in Red Back, that would add roughly another 450,000 ounces,” Kinross Chief Executive Tye Burt said at the shareholder meeting.

“The combined company will be approaching 4.5 to 5 million ounces of production in four and a half years. That, I think, is the most exciting trajectory in our industry,” he added.

Shares of Kinross were up 3.7 percent on Wednesday afternoon in New York and Toronto, while Red Back was up 4.2 percent at C$32.62 on the Toronto Stock Exchange.

PRICEY DEAL?

The deal initially received a mixed reception from analysts and investors, with some concerned Kinross was overpaying.

“We think the deal is expensive,” said Morningstar analyst Min Tang-Varner in a note to clients.

“The price tag translates into $951/ounce of gold reserves. Adding $400/oz for cash costs, the economics of the deal are rather steep, especially compared to transactions such as Newmont’s Boddington deal, which valued gold reserves at $340/oz,” Tang-Varner said in the research note.

Advisory firms were also divided on the merits of the deal. Glass, Lewis & Co and Proxy Governance Inc had advised Kinross shareholders to support the deal, while ISS Risk Metrics had advised shareholders to vote against.

However, sentiment improved last week after Red Back announced a 42 percent increase in the size of the measured and indicated gold resources at its Tasiast mine to 9.25 million ounces.

Kinross has said it believes Tasiast has a resource potential of at least somewhere between 16.9 million and 24.7 million ounces, if not higher.

In a recent note to clients, RBC Capital Markets analyst Stephen Walker advised shareholders to vote in favor of the Red Back deal.

“The Red Back merger provides shareholders with exposure to what may become a world class gold district,” said Walker. “While there are risks in any mining venture, we believe the upside potential at Tasiast offers Kinross investors attractive rewards.”

Kinross said it was pleased that the close of the deal comes just as the price of gold XAU= hit a record $1,274.75 an ounce on Tuesday. It was at $1,265 on Wednesday afternoon.

“This will be one of the great ore bodies in the world today. This (deal) comes at a time when global gold production is flat to down and at a time when folks are not finding a lot of new gold deposits,” said Burt. “We are thrilled with the timing of our deal.”

$1=$1.03 Canadian Reporting by Euan Rocha; editing by Rob Wilson

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