Kinross Gold Agrees to Buy Aurelian for C$1.2 Billion (Update2)

By Stewart Bailey

July 24 (Bloomberg) -- Kinross Gold Corp. agreed to buy Aurelian Resources Inc. for C$1.2 billion ($1.19 billion), giving it the largest gold deposit in Ecuador, where mining was banned in April pending a new minerals law.

Kinross, based in Toronto, will issue 0.317 of its shares for each one of Aurelian's, the company said today in a statement. That would be a 48 percent gain, based on share prices for both companies at the close of yesterday's trading. Aurelian's directors have recommended shareholders accept the offer, which also includes warrants to buy Kinross stock.

Kinross Chief Executive Officer Tye Burt plans to add Aurelian's Fruta del Norte deposit, which contains 13.7 million ounces of gold and 22.4 million ounces of silver, to new mines in Russia, Brazil and Chile. Before this acquisition, Burt had planned to bolster output by more than a third to 2.6 million ounces next year.

``This shows that if you have a world-class asset, like Aurelian does, then someone will want it,'' Andrew Pullar, a gold-fund manager at Baker Steel Capital Managers LLP, said in an interview from London. ``It's a bold move. A lot of Kinross's growth is in politically risky places.''

Aurelian jumped C$2.10, or 47 percent, to C$6.55 at 11:03 a.m. in Toronto Stock Exchange trading. Kinross fell C$2.04, or 9.8 percent, to C$18.80.

Ecuador's government has banned all mining and exploration in the country since April 18, when it started drafting a new minerals law. Aurelian said later that month that it would halt all activity on the Fruta deposit until the government allows operations to resume.

Mining Ban Continues

Mining Undersecretary Jose Serrano said on July 2 that the mining ban, which was slated to end next month, may last until August because of delays in passing the legislation. The law will set royalty payments and minimum social and environmental rules, Serrano said.

Kinross will buy 15 million new Aurelian shares for C$4.75 each to help pay for Fruta del Norte's development. The purchase of that stock is not dependent on the acquisition offer succeeding, Kinross said.

Purchasing Aurelian fits with Kinross's strategy because the company believes the development of the Kupol mine in Russia gives it experience in developing mines in regions with ``some measure of political risk,'' Greg Barnes, a mining analyst at TD Newcrest Inc. in Toronto, said in a note to clients.

``This deposit will add significantly to our mineral resource base,'' Burt said in the statement. ``We intend to pursue a focused strategy to further define the deposit.''

Kinross Warrants

Aurelian shareholders will also receive 0.1429 of one warrant, with each warrant entitling them to buy a Kinross share for C$32 within five years.

Kinross has the right to match any higher offer for Aurelian and will be paid a break fee of C$42 million if another offer is accepted, the companies said.

The most likely competing bids may come from Barrick Gold Corp. or Newmont Mining Corp., both of which would be attracted to the size of the deposit, Barnes said.

Kinross' financial advisors are Scotia Capital Inc., Rothschild Inc. and CIBC World Markets Inc. Aurelian's financial advisors are BMO Capital Markets and Dundee Securities Corp.