Kinross Gold Down 10% Following Great Bear Buyout, But Analyst Sees Long-Term Value

Kinross Gold Corporation KGC traded lower by 10% Thursday after the Canadian gold miner announced a $1.42-billion buyout of Great Bear Resources. Despite the negative initial market reaction, one Kinross analyst said the Great Bear acquisition will help diversify Kinross’ Canadian asset portfolio.

The Analyst: Bank of America analyst Michael Jalonen reiterated a Buy rating and $9.60 price target for Kinross.

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The Thesis: Jalonen said Great Bear’s cornerstone Dixie project in the Red Lake camp in Ontario is an “impressive discovery” and could be accretive to Kinross’ net asset value. Jalonen is expecting an NI 43-101 gold resource estimate for Dixie in early 2022.

He is projecting mining at Dixie would start up by 2027. Assuming a $1,750 gold price and a 5% discounted rate, open pit mining of 6 million ounces of gold yields a net present value of $1.9 billion for Dixie, above the $1.42-billion buyout price.

“The question is, will the market reward KGC for a project still years away from production?" Jalonen said.

The initial market reaction suggests it will not.

Jalonen said Kinross has been in the market for a Canadian gold mining asset for some time, in part because of the tax pools in Canada. Kinross plans to finance the buyout via its $586-million cash position and $1.5-billion revolving credit facility.

For now, Kinross is planning 200,000 meters of drilling at the LP Fault Zone of the Dixie project, the region that Jalonen called “the most significant discovery” thus far.

Benzinga’s Take: Jalonen’s projections suggest Kinross got an attractive price for Great Bear, andthe deal will add long-term value for Kinross. However, 2027 is more than five years away, so investors don’t appear ready to reward the value creation just yet.