Kinross Gold’s Mauritanian desert storm -by Nicolas Johnson (Globe and Mail – May 8, 2012)

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The Tasiast gold mine in the Mauritanian desert was the biggest acquisition in Kinross Gold Corp.’s 19-year existence and one of the biggest takeovers in the history of the gold industry.

It was to have been the centrepiece of the Kinross portfolio, transforming the Toronto-based company into one of the fastest-growing gold miners in the world.

Instead, the $7.1-billion acquisition of Red Back Mining Inc. has bludgeoned Kinross’s stock and balance sheet. The company took a $2.49-billion writedown in February, angering investors and leaving the company’s chief executive officer battling to retain his credibility. Shares of the miner have lost about half their value since the August, 2010, deal.

On Wednesday morning, at Kinross’s annual meeting in Toronto, president and CEO Tye Burt will get another chance to convince shareholders that the biggest bet of his career will pay off. The miner reports earnings a day earlier, on Tuesday.

“The market is pretty frustrated,” says Robert Cohen, who oversees more than $1-billion in gold stocks at Dynamic Funds. “They’re still in the penalty box.”

Although Mr. Cohen, a mining-process engineer who has monitored Tasiast since 2002, believes the deposit will live up to its promise eventually, few investors share his conviction.

A class-action suit, launched by the trustees of the Musicians’ Pension Fund of Canada, alleges Kinross misled shareholders about the potential and costs of the deposit. The allegations have not been proved in court, and Kinross contends the suit is “without merit.”

Mr. Burt, who says the project is “living up to our expectations,” is frustrated by the market reception. The stock, $17.87 on Sept. 9, closed Monday at $8.26.

Two years ago, he spoke of the Tasiast project as a “home run” whose payoffs and potential would be “more exciting” than analysts could foresee. And, in fact, the company has since confirmed reserves of more than 20 million ounces of gold at Tasiast, compared with about eight million at the time of the acquisition. That would make it one of the world’s largest deposits, able to produce gold for decades.

Glen Masterman, in charge of exploration for Kinross, says the company hopes Tasiast will turn out to be in the same league as mega-deposits in Timmins, Ont., and Kalgoorlie, Western Australia. If he’s right, it could give Kinross a lead over rivals for years to come.

But there’s an enormous caveat.

This January, after geologists had analyzed 442 kilometres of rock samples from the 3,074 holes Kinross drilled last year, they learned the deposit wasn’t quite what they expected.

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