Analysts and investors alike are wondering what the CEO shakeup at Kinross Gold possibly means, with some speculating the gold miner will either be broken up or sold.
TORONTO (Bloomberg) – Kinross Gold Corp. (K)’s switch to a new chief executive officer is fueling speculation Canada’s fourth- biggest gold miner will be broken up or sold.
Kinross, which has lost 35 percent of its market value this year, announced Aug. 1 that J. Paul Rollinson, previously vice president for corporate development, would replace Tye Burt. The CEO for more than seven years, Burt led Kinross in four takeovers, including the C$8 billion ($7.9 billion) acquisition of Red Back Mining Inc. in 2010 that led to a C$2.49 billion writedown 17 months later.
Gold miners struggling with rising costs at multibillion- dollar projects may be tempted to acquire Kinross or buy parts of it, Adam Graf, a New York-based analyst at Dahlman Rose & Co., said in a telephone interview.
“I think the majors have to be scratching their heads and saying, I don’t want to buy anything that’s pre-production because my shareholders don’t have the patience for it,” Graf said. “Someone buying Kinross or breaking up Kinross a la Placer Dome could be on the minds of some of the larger mining companies.”
Barrick Gold Corp. (ABX) acquired competitor Placer Dome Inc. for $10.2 billion in March 2006 to become the world’s biggest gold producer. As part of the deal, Goldcorp Inc. (G) paid about $1.6 billion for some of Placer’s assets in Canada. Barrick and Goldcorp are now the two largest Canada-based gold producers by market value, followed by Yamana Gold Inc. (YRI)
‘Extract Value’
Rollinson, a former investment banker with a background in geology and mining engineering, needs to present a clear plan to get the best value from the assets of his Toronto-based company, said Greg Orrell, president of Orrell Capital Management.
“It’s certainly all on the table for them,” Orrell, who manages about $200 million including Kinross shares, said yesterday by phone. “They’ve got to figure out what’s the best way to rationalize that asset base going forward and extract value.”
Steve Mitchell, a Kinross spokesman, declined to comment beyond a statement on Aug. 1, when Kinross said the CEO change was needed to guide the company through its “capital and project optimization process.” Rollinson wasn’t available to comment, Mitchell said.
Kinross’s decline this year in Toronto compares with a 21 percent drop in the 59-member S&P/TSX Global Gold Sector Index. (SPTSGD) The company, which trades at 0.68 times book value, said in January it was reviewing scheduling and development plans for an expansion at Red Back’s Tasiast mine in Mauritania after it compiled more data on the gold deposit.
Development Delays
In February, it announced the writedown on Tasiast and said it would delay development of mines in Ecuador and Chile.
The CEO change may indicate that there is bad news on the way regarding the Mauritanian mine, Anita Soni, an analyst at Credit Suisse AG, said in a note. The expansion project may cost as much as $4 billion, compared with Kinross’s previous forecast of $3.2 billion to $3.7 billion, she said.
Burt “staked his reputation on Tasiast” when he asked investors to trust him that it was worth the purchase price, Soni said. Kinross shareholders approved the Red Back deal, even with a recommendation by investor adviser RiskMetrics Group Inc. that they vote against the acquisition because production would have to be “significantly higher” than market consensus to break even.
Asset Rationalization
“We believe Mr. Rollinson has been hired to lead the asset rationalization and restructuring process for Kinross which may include a divestment of Tasiast,” Soni said.
Before the Red Back acquisition, Kinross acquired Bema Gold Corp. in 2007 for C$3.7 billion in shares to add assets in Russia and Chile. The following year, the company bought Aurelian Resources Inc., also for stock, for its Fruta del Norte project in Ecuador. Under Burt, Kinross also acquired Underworld Resources Inc., which owned a project in the Yukon, for C$90.76 million in 2010. Kinross also has operations in Russia, the U.S., Brazil and Ghana.
Development has yet to begin on Fruta del Norte while the company negotiates investment terms with the Ecuadorean government.
“The things that they’ve done don’t give any confidence to investors that they have the capability to run the company,” Orrell said. “They just got to the point where there was no confidence through the organization and through the whole investment community right on down.”
For the rest of this article, please go to the Mineweb.com website: http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=156402&sn=Detail&pid=102055