Kinross Acquires Underworld – Analyst Blog

Kinross Gold Corporation (KGC) has completed the acquisition of North American exploration company, Underworld Resources Inc. for C$139.2 million ($135.3 million), comprising 0.141 of a Kinross share plus Canadian Dollar 0.01 in cash, subject to adjustment with respect to fractional shares. The offer represents a value of C$2.62 ($2.48) a share, a 36% premium to Underworld’s closing price as on March 2010.

Underworld Resources is engaged in exploring Canada. Its flagship asset is the White Gold project, located in the Tintina gold belt in Canada’s Yukon Territory. The project has resources of about 1.5 million ounces of gold.

Kinross is a Canada-based gold mining company with mines and projects in the United States, Brazil, Chile, Ecuador and Russia. In March this year, Kinross had entered into a support agreement with Underworld Resources to acquire the latter in a cash and stock deal.

Following the support agreement, Kinross had announced its intentions of gaining full control over Underworld by acquiring 100% of Underworld. Kinross already owns 8.5% of Underworld. Kinross will issue about 6.8 million shares, or 1% of its current outstanding shares, to pay for Underworld.

Kinross is reinvesting in smaller projects. We believe the acquisition will fit in well with Kinross’s stated goal of expanding its asset base in North America. Like other gold producers, Kinross benefits from rising gold prices. The Bema Gold Corp. acquisition last year has been a major contributor to Kinross’s profits.

We expect Kinross’s exploration projects and acquisitions to also boost its top line, going forward. Kinross has cleared its hedge book and stands fully levered to spot gold prices.

However, the emerging market growth is declining and production level is shrinking at some of its existing operations. We reiterate our Neutral recommendation on Kinross Gold, supported by the short term (1 to 3 months) Zacks Rank #3 (“Hold”).