Kinross Gold Corp. K-T is in discussions to sell its Russian operations to an unnamed third party as it attempts to bring its more than 20-year odyssey in Russia to a close after the Ukrainian war forced its hand.
Shortly after Russia invaded Ukraine in late February, Toronto-based Kinross mothballed both its large Russian mine, Kupol, and development project, Udinsk, in Siberia. At the time, several other multinational companies, including Canada’s Magna International Inc., also put their Russian operations on hold. In light of the international condemnation Russian President Vladimir Putin has faced since the invasion began, and then expanded to include the bombing of civilian targets, the idea of Kinross ever going back to business as usual in Russia was seen as untenable.
This week, Kinross confirmed expectations that it intends to exit Russia. The company said in a statement that after receiving several expressions of interest, it had entered exclusive negotiations with an undisclosed mining company to sell its entire Russian business.
Given Russia’s pariah status on the international investment stage, the list of possible buyers for Kinross’s Russian operations was expected to be small. And in light of the distressed nature of the sale process, the price Kinross will get for the business likely won’t be anywhere near what it could have fetched before the crisis began. Still, analysts expressed relief that Kinross’s days in Russia appear to be numbered.
Tanya Jakusconek, analyst with Scotia Capital Inc., wrote in a note to clients that while this is a “disappointing end to an otherwise successful multidecade operating history” for Kinross in Russia, selling now is prudent, given the stark reality of the war, and the possibility of Russia eventually nationalizing the assets.
Fahad Tariq, analyst with Credit Suisse, in a note estimated the value of Kinross’s Russian business to be US$893-million, but said the likely final sale price could be heavily discounted.
Selling the Russian operations will leave Kinross with a big financial hole to fill. Last year, Russia accounted for 23 per cent of Kinross’s production, and the Kupol mine complex was its most profitable segment, generating a profit of US$443-million.
From a geopolitical risk viewpoint, however, exiting Russia would position Kinross as a far less risky bet for investors. The company has long traded at a discount to peers, such as Agnico Eagle Mines Ltd., owing to its exposure to Russia.
Founded in the 1990s, Kinross made its big move into Russia in 2007 with the acquisition of Bema Gold Corp. for US$3.2-billion. That same year, Kinross put the Kupol mine into production. Kinross managed to come through the 2014 Russian invasion of Crimea relatively unscathed and, in 2019, decided to double down on Russia by acquiring Udinsk for US$283-million. Kinross had plans to put the project into production in the next few years.
Analysts have speculated that Kinross without risky Russia makes it a more attractive acquisition target. In a report earlier in the week outlining the 10 most likely M&A dance partners in the gold mining sector, Scotia Capital singled out a Kinross acquisition by Barrick Gold Corp. ABX-T as making a lot of sense.
Buying Kinross would allow Toronto-based Barrick to reclaim the crown it lost a few years ago as the world’s biggest mining company by production. Barrick has already made it clear that it wants to grow its portfolio in Canada, where it has only one mine. Kinross recently acquired Canadian gold development company Great Bear Resources Ltd., which has a promising project in Red Lake, Ont. The Globe and Mail reported that Barrick was among the bidders for Great Bear.
Scotia also speculated that a Kinross merger with mid-tier producer Yamana Gold Inc. would be welcomed by investors. Such a combination would see the creation of a top-five global gold producer with a portfolio of mines heavily weighted toward the Americas. Toronto-based Yamana owns a 50-per-cent stake in the massive Canadian Malartic mine in Quebec, and it wholly owns the Jacobina mining complex in Brazil. Kinross’s Paracatu mine is also located in Brazil. Last year, Paracatu was its second-most profitable unit, generating a profit of US$384-million.
Kinross, Barrick and Yamana declined to comment.
Shares in Kinross rose by 2.9 per cent on Wednesday on the Toronto Stock Exchange to close at $7.40 apiece.
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