When Kinross launched its friendly offer for Aurelian on July 24th, Bay Street was torn over whether it overvalued or undervalued Aurelian.

While Aurelian's Fruta del Norte deposit in Ecuador is arguably the best undeveloped gold discovery in the world, Ecuador still has no firm mining law and no history of large-scale mining.

Many investors and analysts thought a rival bid from Barrick Gold Corp. or Newmont Mining Corp. was likely, both because of the 13.7 million ounces of gold resources in the ground and the fact that Fruta del Norte is the type of low-cost project that the majors desperately need.

But it appears that they decided Ecuador is not worth the risk, clearing the way for Kinross to buy Aurelian for under $850-million (in stock and warrants) at today's prices.

Industry experts said that could prove to be a steal - but only if Ecuador moves in the right direction.

"Given the lack of transparency on mining law in Ecuador, we don't know if Kinross is paying a ridiculously low price or an outrageously high price," said Charles Oliver, senior portfolio manager at Sprott Asset Management. "It looks like [Kinross] will probably get it on the cheap, but it's not without risk."

The popular rumour on Bay Street is that Barrick and Newmont want to watch how Kinross does with Fruta del Norte and its Kupol project in Russia, and potentially buy Kinross in the future rather than Aurelian.

Kinross spokesman Steve Mitchell said in an interview yesterday that the investor response to the Aurelian offer has been "very positive."

While there has been vocal opposition from a group of retail investors, the market is assuming the bid will succeed. Aurelian shares are trading in lockstep with the Kinross bid, and the deal has not generated much interest from the arbitrageurs that buy into takeover plays and push for higher offers.

"I'm a little surprised it's been so quiet. But I think that's the way Kinross wanted to do it. They didn't really want to wave the flag and rattle things too much," said Michael Gray, an analyst at Genuity Capital Markets.

Kinross needs to get at least two-thirds of the shares tendered to proceed with the takeover. Mr. Gray said it is possible that Kinross will nudge up its bid if the tender comes in below that level.

Financial Post

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