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At current gold prices, analysts said Kinross could buy back US$700-million of stock by the end of 2024, or more than 15 per cent of its outstanding shares.Mark Blinch/Reuters

Kinross Gold Corp. K-T struck an agreement Monday with activist investor Elliott Investment Management LP to ramp up its share-buyback program, including a commitment to repurchase US$300-million of its own stock this year, and the miner’s share price soared on the news.

After several weeks of what the Toronto-based company called “constructive discussions” with Elliott, a US$56-billion American hedge fund with a four-decade history of shaking up companies, Kinross said it plans to use money from recent mine sales to double this year’s planned share buyback.

In the next two years, the company pledged it will use 75 per cent of excess cash to repurchase its own stock. Kinross’s share price jumped 9 per cent in early trading on the TSX on Monday, an otherwise lacklustre day for equity markets, after the company announced the agreement. The shares closed at $4.81, up 11 per cent.

“We share a common view that our shares offer a highly compelling investment opportunity and as a result believe that a more substantial share-buyback program is a highly attractive use of excess cash,” said Kinross chief executive Paul Rollinson said in a statement.

Prior to the agreement, Kinross planned to buy back US$150-million of stock this year and pay out an additional US$150-million in dividends. Kinross will still pay investors the dividend. In a report Monday, analyst Greg Barnes at TD Securities said: “An enhanced share buyback program would appear to be a highly attractive use of excess cash.”

Kinross stock traded at a “significant discount” to the value of its properties, including the Great Bear mine in Northern Ontario, and the valuation on rival gold miners, according to Elliott portfolio manager Mark Cicirelli. In a news release, Mr. Cicirelli said: “We believe that with this new capital-allocation framework, Kinross is taking a major step toward closing that gap and realizing the upside potential in its stock.”

At current gold prices, analysts said Kinross could buy back US$700-million of stock by the end of 2024, or more than 15 per cent of its outstanding shares. If bullion prices hit US$2,000 an ounce, the buyback increases to approximately US$1.2-billion.

Elliott did not disclose the size of its stake in Kinross. The mining company announced the agreement as Kinross executives and much of the mining industry gathered in Colorado for this week’s annual Denver Gold Forum.

Kinross’s stock has unperformed peers over the past year, after it spent $1.8-billion in February to acquire junior mining company Great Bear Resources Ltd., which was developing a property in Northern Ontario.

In February, Russia’s invasion of Ukraine forced Kinross to sell two properties in Siberia for US$340-million, a fraction of their value prior to the war. In August, the company raised US$225-million from selling a mine in Ghana to Asante Gold Corp ASE-CN.

Prior to Monday’s announcement, Kinross’s share price declined by 37 per cent over the past 12 months, while the current price of gold is only slightly lower than it was a year ago. At those levels, analysts also said Kinross’s share price failed to reflect the strength of its operations. In a report in August, Tanya Jakusconek at Scotiabank said: “We believe Kinross is undervalued based on the overall quality of its asset base and free cash flow generation.”

Earlier this year, Elliott waged a successful campaign for change at Canada’s largest oil and gas company, Suncor Energy Inc., nominating new board members and potentially putting Suncor’s Petro-Canada gas station business up for sale. Elliott has also shaken up boards and shifted strategy at companies such as PayPal Holdings Inc., AT&T Inc. and Marathon Petroleum Corp.

The agreement with Elliott allows Kinross to continue spending on Great Bear and other properties in Canada, the United States, Brazil, Mauritania and Chile. This year, the company plans to invest US$850-million in its operations. Kinross expects to produce 2.15 million ounces of gold this year.

The buyback agreement “is a responsible allocation of capital that does not compromise our balance sheet or our ability to fund our business and advance our impressive pipeline of growth projects,” said Mr. Rollinson.

Over the past year, Kinross aggressively paid down debt and it currently has an investment-grade credit rating. On Monday, the company said the share buybacks scheduled for 2023 and 2024 will only take place if debt remains below a preset level. The company can also temporarily pause buybacks in case of a ratings agency downgrade, major operational disruptions or a significant drop in the gold price.

Over the past five years, institutional investors have been openly critical of gold miners’ performance and governance. Hedge fund manager John Paulson and other investors launched the Shareholders’ Gold Council in 2017. Ahead of the Denver conference in 2020, the group published an open letter that said while miners’ share prices were improving, “we believe that performance continues to fall short in the areas of corporate governance, alignment of incentives and strategic vision & communication with investors.”