Merger expected to double Kinross Gold Corp. size

Posted: Monday, January 06, 2003

FAIRBANKS - A pending merger between Kinross Gold Corp. and two Canadian companies would make Kinross the seventh-largest gold producer in the world.

Fairbanks Gold Mining, a wholly owned subsidiary of Kinross, would supply half of the potential new company's gold.

"We will double in size," said Gordon McCreary, vice president of investor relations and corporate development. "Fort Knox will remain the largest single source of gold for Kinross."

Fairbanks Gold operates the Fort Knox and True North gold mines, both about 26 miles north of Fairbanks.

In 2002 Kinross entered into merger agreements with TVX Gold Inc. and Echo Bay Mines Ltd. Kinross and TVX are based in Toronto, Ontario, while Echo Bay is based in Edmonton, Alberta. Also under the agreement, the new Kinross would obtain 49.9 percent interest in TVX Newmont Americas joint venture.

With rising gold prices, the merger would place Kinross in a good position, McCreary said.

Once the new company is formed, it will produce 2 million ounces annually with total cash costs of $200 an ounce. By comparison, Denver-based Newmont Mining Corp. is the world's largest gold producer with more than 7.5 million ounces annually.

The new Kinross will have a global resource base of 40 million ounces to draw more gold production from and will have properties spread through Canada, Alaska, the Russian Far East, the Lower 48, Greece and South Africa. Robert Buchan, Kinross' current president, will lead the new company.

"We're looking forward to 2003 and beyond," McCreary told the Fairbanks Daily News-Miner.

Gold companies worldwide, Kinross included, had cut down on gold exploration due to gold low prices, bottoming at $244 last year. As a result, there haven't been any new gold resources put into the production process of permitting and financing, but that's expected to change since gold will likely break $350 an ounce this year and stay there.

The merger will put the company in "better terms to look for assets," McCreary said.

The new company will also have less than 5 percent of its gold "hedged," a practice of selling forward gold at a fixed price, usually instituted while gold prices drop. That means the new Kinross is best able to capture profit as gold prices rise and not be stuck with previously contracted prices, McCreary said.

Kinross began vigorously selling its hedges last May because of the improved gold price, he said. Echo Bay currently has no hedges left, he said.

The new Kinross also will have a strong balance sheet with 3.2 percent net debt ratio to capital, McCreary said.

A joint shareholders meeting with the three companies is schedule for Jan. 31 in Toronto. On the agenda: whether to accept terms of the merger, which includes a reverse split of Kinross stock, meaning for every three shares of Kinross common stock, shareholders would be issued one share.

Kinross is readying paperwork to get back on the New York Stock Exchange. The company was delisted in 2001 when its stock tumbled below a dollar and stayed there for months. Kinross switched to the American Stock Exchange and kept its place on the Toronto Stock Exchange. On Friday Kinross stock closed at $2.51 on the AMEX.

If shareholders approve the reverse split, Kinross stock would triple in value, according to McCreary.

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