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« High River Gold Mines Limited Update 19th August 2010 | Main | OptionTrader: Your Money Back If Gold Doesn’t Trade Above $1265 in 2010! »

Kinross Gold Corporation: A Takeover Too Far?

KGC Chart 18 August 2010.JPG

The acquisitive nature of Kinross Gold Corporation (KGC) has taken it to the door step of Red Back Mining Incorporated (RBI) which appears to be a very good acquisition in terms of providing a pipeline of mining opportunities for Kinross. As usual with the predator in these situations the stock price of Kinross reflects a fair amount of trepidation in the mood of the investor, than both management teams would have liked to see.

As the chart above clearly depicts the stock price is heading south and note at a time when gold prices are heading north, so whats the problem. The problem is one of perception, in our humble opinion, in that this is an all paper deal whereby Kinross exchanges stock for assets. This type of deal is dilutive in that an enormous number of shares will need to be issued to meet the $7.00 billion dollar plus asking price for Red Back Mining. The market capitalization of Kinross currently stands at $10.68 billion so Kinross is about to almost double its size. If this deal goes through then there will be a period of digestion, or indigestion, as the two companies are amalgamated and the new management team search for economies of scale, etc.

Kinross and Red Back Mining 18 August 2010.JPG

As both management teams set about the task of selling this deal to the investment community we came across this clip on BNN who talked to Richard Clark, CEO, Red Back Mining, about the takeover. Its worth a watch just to see why Red Back wants this deal as oppose to maybe a deal with one of the other majors. However, it didn't do a lot for us as holders of Kinross stock and we must try and assess how Kinross will perform over the next twelve months. We are expecting gold prices to improve dramatically but the question is:

'Will Kinross reflect the rally in precious metals or are we in for twelve months or so of consolidation.'

If our cash could be deployed more effectively elsewhere then maybe we ought to reduce our stake in Kinross and put the cash to work in a stock or an options play that might offer better returns over the twelve months ahead of us.

Stay on your toes these are treacherous waters and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here. have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

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Reader Comments (3)

if or when the double dip comes, would you expect gold and silver to fall as well, if only for a short period.
your thoughts please
all the best

August 18, 2010 | Unregistered Commenterpeter

As a former shareholder of Kinross, I dumped my shares about 2 months ago, prior to the Red Back announcement. Kinross has underperformed for the last several months, not just due to the Redback deal.

I could be wrong, but I was getting the impression that Kinross is perceived as a higher risk play due to the Russian connection.

August 18, 2010 | Unregistered CommenterHoward Jeglum

Looks like DEFLATION is coming-gold could be hit hard. In 1982 gold dropped $200 in one day. Just for the record I purchased my first gold stock in 1968-Hartesbeestfontain gold-South African -paid 18% quarterly. What say you ?

August 18, 2010 | Unregistered CommenterP

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