By paying too much for acquisitions in western Africa, Kinross Gold Corp. (K) is now turning itself into the cheapest gold-mining target in the world.
Kinross, Canada’s third-largest gold producer, fell the most in almost two decades after saying this week it will write down the value of its Tasiast mine in Mauritania. The company sold for 76 cents per dollar of net assets yesterday, versus the industry median of 2.5 times, according to data compiled by Bloomberg. Writing off the excess $4.6 billion it spent on Tasiast would still leave Kinross at a 50 percent discount to its competitors, the data show.
While Kinross bought the Mauritanian mine for almost three times what the gold deposit is worth, the company is facing rising labor and raw material costs that may delay production at some of its projects. After more than quadrupling revenue in the past five years as gold prices reached a record, Kinross may now attract interest from Newmont Mining Corp. or Polyus Gold International Ltd. (PLGL) as they try to boost capacity to meet demand, said Stifel Nicolaus & Co. On its own, analysts say Kinross is worth 50 percent more than its current price.
“This is a company whose management team has made some aggressive, disappointing decisions,” Keith Wirtz, who oversees $14.6 billion as chief investment officer at Fifth Third Asset Management in Cincinnati, said in a telephone interview. “Every dollar lower pushes the stock higher up the list of potential takeovers. That will attract the sharks in the water.”
Wirtz said Barrick Gold Corp. (ABX), the world’s largest producer of the precious metal, could also be a potential acquirer.
Steve Mitchell, a spokesman at Toronto-based Kinross, said the company doesn’t comment on market rumor or speculation.
Omar Jabara, a spokesman for Greenwood Village, Colorado- based Newmont, the world’s second-largest gold producer, declined to comment on whether it is interested in Kinross.
Anton Arens, a spokesman for Polyus, didn’t immediately return a telephone call or e-mail requesting comment outside regular business hours. Andy Lloyd, a spokesman for Toronto- based Barrick, also declined to comment on whether it would consider buying Kinross, citing company policy.
Kinross advanced as much as 2.8 percent today before closing 1.1 percent higher at $10.21 in New York.
Founded in 1993, Kinross mines and sells more than 2.5 million gold ounces a year and has operations in Mauritania, Ghana and Ecuador, according to its website. It ranked behind Barrick and Goldcorp Inc. among Canadian gold producers and was the sixth-largest gold mining company globally in 2010, data compiled by Bloomberg show.
Red Back Mining
Kinross, which has spent more than $14 billion on takeovers since its inception almost 19 years ago, acquired the Tasiast mine after completing its acquisition of Red Back Mining Inc. for about C$8 billion ($7.8 billion) in September 2010, according to data compiled by Bloomberg.
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