Kinross easily tops up war chest for acquisitions

By Andy Hoffman
The Globe and Mail, Toronto
Tuesday, January 21, 2009

http://www.theglobeandmail.com/servlet/story/RTGAM.20090121.wkinrosshoff...?

Tye Burt's got gold. Now he's got cash.

While the capital markets have all but turned their back on most Canadian companies, gold producers are revelling in fervent demand for their shares that has prompted a wave of large equity financings.

Toronto-based Kinross Gold Corp. is the largest gold miner yet to tap the receptive stock markets, unveiling a bought deal financing Wednesday that could raise as much as US$414.6-million.

Already armed with a cash balance sheet of about $500 million, Kinross did not need to raise the funds, the company's chief executive officer Mr. Burt conceded in an interview.

The company is topping up its war chest by issuing as many as 24 million shares. Kinross plans to take advantage of the growing valuation disparity between larger gold producers who are generating cash flow and junior miners struggling to survive as their access to capital has evaporated.

"In a generation, you don't see the kinds of valuation differentials that you see today. So we want to make sure we are fully armed and ready as we contemplate that," Mr. Burt said. "In these uncertain markets I'd rather be the hunter than the hunted."

Other than the big Canadian banks and a handful of staid utilities, gold miners are among the only companies on the TSX that have been able to raise cash by issuing stock in recent months.

Even with the equity markets in a tailspin, investors have been willing to buy gold shares on the belief that the bullion price will remain strong amid the sharpest global economic downturn in more than half a century. While most other corporate sectors are expected to suffer declining sales and profit this year, gold miners will likely buck the trend.

"The prospects for gold producers are relatively healthy compared to some of the other business streams. It's one of the few commodities that people believe has a potential upside," said Anita Soni, an analyst at Credit Suisse.

Currently fetching about US$850 an ounce, gold has rallied in recent weeks and some believe the yellow metal could climb back above US$1,000 an ounce.

Industry sources said investment bankers have been beating a path to gold producers' doors, urging them to issue stock while they can.

"The equity markets for gold producers are wide open," said one banking source. "Everybody is going to come to the trough. There are 15 to 20 sizable gold producers and I think most of them are going to raise money," he said.

Several already have. Agnico-Eagle Mines Ltd. raised $290 million amid the market chaos last fall, issuing 9.2 million units that consisted of a company share and a half share purchase warrant. That deal was secured by a pledge from the Canada Pension Plan Investment Board to buy the entire issue if necessary. The pension plan ended up buying three million units.

Fellow Toronto gold producer Yamana Gold Inc. was next, unveiling plans for a C$100 million share offering in December. Demand was strong enough that Yamana increased the financing to C$135 million.

Even small gold producers such as Red Back Mining Inc. and Minefinders Corp. have been able to issue stock, raising $60 million and $40 million respectively.

The financing ability of junior miners with no cash flow, however, provides a brutal study in contrasts. Several junior miners hobbled by a lack of cash flow have had to issue massive amounts of discounted stock to fund their development projects. Vancouver's NovaGold Resources Inc. recently raised US$75 million but had to issue shares and warrants that could give a private U.S. investor up to 45 per cent of the company.

"If equity markets were closed to everybody in August and September they are now open to a few. That constraint has really handicapped the junior sector," Kinross' Mr. Burt said. "If you don't have a cash flowing project as a company, I think you've got a serious issue."

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