Business News Americas Article/Comments from Haywood
posted on Jul 25, 2008 07:05PM
The company whose shareholders were better than its management
Kinross makes US$1.19bn friendly bid for Aurelian - Ecuador
Published: Thursday, July 24, 2008 17:53 (GMT -0400)
By Anthony Esposito,
Torontonian Kinross Gold (TSX: K, NYSE: KGC) intends to purchase compatriot Aurelian Resources and its giant Fruta del Norte (FDN) gold-silver deposit in Ecuador in a transaction valued at some Cdn$1.2bn (US$1.19bn), the companies said in a joint statement Thursday.
Both miners' boards have approved the business combination by way of a friendly bid by Kinross to acquire all of Aurelian's (TSX: ARU) outstanding common shares whereby Kinross will offer 0.317 common shares and 0.1429 warrants, with each warrant entitling the holder to acquire one Kinross common share, for each Aurelian common share.
Based on Kinross' average TSX share price for the last 20 days and assuming a value of Cdn$0.92 per 0.1429 warrant, the value of the offer is Cdn$8.20/share, a premium of some 63% over the 20-day average price of Aurelian common shares, the statement said.
"I think it is a fair valuation given the risk and exposure to a junior company. Given the risk associated with the country and the stage of the project, I think it is a realistic valuation," Haywood Securities mining analyst Andrew Kaip told BNamericas.
The bid values the gold ounces in ground at about US$85 each, while the average for projects at a much more advanced stage is near US$125/oz, Kaip added.
Aurelian closed up 41.8% on the TSX at Cdn$6.31, while Kinross slipped 10.3% to Cdn$18.70.
"We're going to see Kinross' share price bump around a little bit. But at the end of the day it is good for Aurelian shareholders and long term it will be very accretive to Kinross shareholders," the Haywood analyst said.
Kinross expects to issue nearly 47mn common shares, representing about 8% of its current outstanding common shares, the companies said.
Fruta del Norte, on the Condor property in southeast Ecuador, holds an initial inferred mineral resource of 58.9Mt grading 7.23g/t gold and 11.8g/t silver for 13.7Moz contained gold and 22.4Moz contained silver, using a cutoff grade of 2.3g/t gold-equivalent.
MINING IN ECUADOR
In late April, as required by the mining mandate announced by Ecuador's constituent assembly, Aurelian halted activities on its projects in the country, including drilling, exploration and development.
"The mining mandate requires a complete suspension of activities on our concessions while a new mining law is drafted and implemented," Aurelian CEO Patrick Anderson said at the time.
Kinross and Aurelian believe that recent initiatives by Ecuador's government, including public statements by President Rafael Correa and the country's mines and oil ministry, indicate that Ecuador is becoming increasingly open to responsible mining.
"We think that our experience and track record in construction, development, community relations and social responsibility in general will help us work well with the folks in Ecuador and the local communities as we move this project through permitting, development and ultimately to construction state," Kinross CEO Tye Burt said during a conference call.
"We believe that Kinross will do the right thing in Ecuador and Ecuador will do the right thing for Kinross," Aurelian CEO Patrick Anderson added during the call.
PRIVATE PLACEMENT, OTHER TERMS
The bid agreement allows for Aurelian to accept a third-party offer by paying a break-fee of Cdn$42mn and subject to a right by Kinross to match the superior proposal.
Additionally, Kinross has agreed to purchase 15mn Aurelian common shares on a private placement basis, at Cdn$4.75/share for total proceeds of about Cdn$71mn.
The private placement, which is not conditional on completion of the acquisition offer, will be used to partially fund the development of FDN and for general corporate purposes, Aurelian said.
The takeover is subject to approval by two-thirds of Aurelian's shares.
According to Haywood's Kaip, Aurelian's management already owns some 10% of company shares, and after the private placement Kinross will also control about 10%.
"There is support for it [the bid], so I think it will go through. There is an outside chance that there will be a counter offer. But I don't rate that very high," Kaip said.