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Uneasy With Kinross Red Back Merger

KGC Chart 02 September 2010.JPG

Below follows a news release from Kinross Gold Corporation (KGC) however we are a little uneasy with it as the schedule of 36 months for the construction of the Tasiast mine appears to be on the ambitious side of things.

The release says: the Company expects to fast-track engineering and project development work on the Tasiast expansion, including tendering for an EPCM contractor.

EPCM stands for Engineering, Procurement, Construction and Maintenance. So as it stands there isn't a contractor in place to do this work, the process of compiling the tender package on which the contractors will base their bids will take time. However, even if Kinross are well on the way in terms of compiling this package for the the contractors, time will be needed to prepare a detailed competitive bid. The bidders will have a myriad of questions in order to get clarification of various aspects of this project. The more sketchy the data and the more pressure that is applied in the bid phase, the bigger the price will be as the contractor has to ensure that he has covered everything and mitigated all the risks.

Assuming the vote goes well and all is done and dusted by the end of September 2010, the bidding process then takes say until the end of November, bid tabulation, removal of any snags and a recommendationis made by January 2011, award the contract by February 2011, the contractor needs a month or so to mobilize, so commence in March 2011. Three years later and its March 2014, assuming all goes well and there are no unforeseen circumstances along the way. From my own experience in the EPCM industry I would add another year to the programme right now.

Finally, what if this gold bull market is over by then?

Should we be investing in those that are mine building right now or say those who are through the building stage and into production such as Agnico-Eagle Mines Limited.

For disclosure purposes we own stock in both Kinross and Agnico-Eagle and both will be kept under observation until we have more details about this merger.

This is the news release for those who want to read the whole article please click here.

Toronto, Ontario - September 1, 2010 - Kinross Gold Corporation announced today that in response to a request from Institutional Shareholder Services (ISS), the Company is providing further details regarding its friendly combination with Red Back Mining Inc. This includes additional detail to the "Background to the Arrangement" section of the management information circular dated August 16, 2010. The Company is also providing further information on its development plans for the Tasiast mine, in order to assist Kinross shareholders in evaluating the transaction.

Background to the transaction

From December 2009 through the first quarter of 2010, the Kinross Board met on five occasions, during which it received regular updates regarding potential acquisitions from Kinross management. These meetings included a number of discussions regarding early stage review of potential opportunities involving Red Back. Over the next four months, prior to the announcement of the transaction on August 2, 2010, the Board convened a further four times. At these meetings, the proposed business combination with Red Back was the subject of detailed discussion and consideration. In addition, the standing Special Committee of the Board, which advises the Board and management on transactional matters as part of its mandate, met on numerous occasions during the same period.  On ten separate occasions, the Special Committee met specifically to discuss potential opportunities involving Red Back. Between January 2010 and the announcement of August 2, 2010, senior management from the two companies met five times to formally discuss and negotiate the terms of a potential business combination.  Additional detail on the chronology and substance of the above meetings during which the Red Back combination was discussed is provided in an appendix to this news release.
Tasiast development plans

Following closing, Kinross plans to undertake immediately an extensive development program to expand the Tasiast operation. The Company currently anticipates completing this expansion program within approximately 36 months, with a view to commencing operations at a new mill in the fourth quarter of 2013. Given its extensive due diligence of Red Back and the Tasiast mine, the Company has already undertaken a substantial amount of planning and development work to support the proposed expansion. The Company's near-term timeline addresses four major areas of development activity: 

• First, immediately following closing, a comprehensive integration program will be undertaken with the aim of ensuring a smooth transition and integration of the two companies, including maintaining production at existing operations and promptly initiating preparatory activities to support the expansion project at Tasiast.

• Second, an intensive exploration program including additional infill and step-out drilling is expected to commence shortly after closing. This program will involve increasing significantly the number of drill rigs at Tasiast and accelerating the current drilling campaign to delineate the high-grade zone at depth. The Company will provide an update on its expanded exploration program along with its third quarter results in November 2010 and expects to issue a new NI 43-101 compliant reserve and resource declaration in February 2011.

• Third, the Company expects to fast-track engineering and project development work on the Tasiast expansion, including tendering for an EPCM contractor, completion of a scoping study by December 2010, and completion of a feasibility study by July 2011. The development plan for Tasiast currently envisions construction of a new mill with increased capacity from the current level of 10,000 tonnes per day to approximately 60,000 tonnes per day, and purchase of a new, larger mining fleet, tailored to the scale of the expanded operation.

• Fourth, the Company will commence community relations and permitting activities to support an expanded operation and required infrastructure, including the need for additional water, power, and related infrastructure.

Kinross will provide updates on progress in its 2010 third quarter and year-end results.

Stay on your toes 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.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09. On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.

We also thought that you might like to know that on Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.

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Reader Comments (1)

Kinross closed today, 21st Septemeber 2010, at $18.87 so it has made some good progress in the last week or so. Getting the vote out of the way has removed the uncertainty, which should help a little.

September 21, 2010 | Unregistered CommenterGold Prices

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