Kinross Acquires Dvoinoye Deposit - Analyst Blog

Kinross Gold Corporation (KGC) has acquired a 100% interest in Russia’s Dvoinoye deposit and the Vodorazdelnaya exploration and mining licenses by taking over the Northern Gold LLC and Regionruda LLC, the companies that enjoyed the rights to the properties. In exchange, Kinross paid about $165 million in cash and about 10.56 million newly issued Kinross shares. Both assets are located north of Kinross' Kupol operation in the Russian Far East. The open pit Dvoinoye mine operates for six months producing about 250 tons per day.

Kinross has complied with all conditions of the transaction. The company obtained the approval from Russia government for the ownership of the Dvoinoye deposit as required under the Russian Federation Law No. 57.

The acquisition would consolidate Kinross’ presence in Russia, where the company has its major chunk of reserves. Kinross’ Kupol project in Russia is an important asset. The company plans to save cost of construction of a mill by processing the metals ores produced at Dvoinoye mine at its Kupol mills. In 2010, Kinross expects to spend about $5 million on exploration activities and $15 million on other development activities.

Kinross has facilities in the U.S., Canada, Brazil, Chile, Russia and Africa, catering to a diverse clientele. After the acquisition of the gold producing company Bema Gold Corp. in Russia, Kinross now operates 9 mines in 5 countries. These include Fort Knox and Round Mountain in the U.S., Porcupine and Musselwhite in Canada, La Coipa and Maricunga (formerly Refugio) in Chile, Kubaka in Russia, and Crixas and Paracatu in Brazil. The company’s projects in the pipeline comprise expansions at Paracatu in Brazil, Buckhorn in the U.S., Kupol in Russia and Cerro Casale in Chile.

Like other gold producers, including Barrick Gold Corporation (ABX) and Goldcorp Inc. (GG), Kinross Gold Corporation benefits from rising gold prices. The company has cleared its hedge book and stands fully leveraged to rising spot gold prices. We expect Kinross exploration projects and acquisitions to also boost its top line in the long term. However, emerging market growth is declining and production levels are shrinking at some of its existing operations. Volumes are low especially in Chile, which contributes a major portion of revenues. We are also concerned about Kinross’ earnings volatility and lower gold reserve base. Higher mining and administrative costs should further constrain margins in the near term.

Currently, KGC has a short-term (1 to 3 months) Zacks #3 Rank (“Hold”) and a long-term (6+ months) Neutral recommendation.

 
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