Kinross Gold Corp. (K:TSX; KGC:NYSE), which has publicly stated it wanted to own a Canadian asset, agreed to acquire Great Bear Resources Ltd. (GBR:TSX.V; GTBDF:OTCQX) and its Dixie gold project in Ontario's Red Lake Mining District for about CA$1.8 billion (CA$1.8B), or US$1.4B, Stifel GMP analyst Ingrid Rico reported in a Dec. 9 research note.
"Stifel GMP has a positive view on the Dixie project, but we believe that the market will need time to understand the value of this project," Rico added.
The analyst presented the terms of the deal. Kinross agreed to pay CA$29 per share for Great Bear, which is at a 31% premium to Dec. 8's closing price and a 40% premium to the 20-day volume-weighted average price.
The contingent value rights consideration is equal to 0.1330 of one Kinross share per one Great Bear common share. This is to be paid when both commercial production starts at Dixie and the estimated Measured and Indicated resource there is at least 8,500,000 million ounces (8.5 Moz).
Great Bear shareholders may choose to receive cash or Kinross shares, however, both have a cap. The aggregate cash maximum is CA$1.4B and the issued shares maximum is 95.8 million.
Per Stifel GMP's calculations, assuming a 12,000,000 ounce (12 Moz) resource at Dixie, Kinross will pay about US$113 per ounce on an enterprise value per ounce basis (excluding the contingent payment). Assuming a smaller resource, of 8.5 Moz, Kinross will pay US$160 per ounce.
Rico described the current status of the Dixie project. There, Great Bear discovered five high-grade gold discoveries, including the LP Fault zone, after drilling 794 holes over 340,000 meters.
"The LP Fault zone at the Dixie project has been depicted as analogous to the Hemlo mine, which has a multidecade history of production and more than 20 Moz of production," noted Rico.
An initial resource estimate for Dixie has not yet been done. Great Bear was working to release one on the LP Fault zone in Q1/22.
Given Dixie's early stage, Rico purported the market may have "a mixed view on this transition as it seemingly looks like a big price for a preresource junior company. The market might believe that it can't confidently wrap its arms around valuation and future production potential." It could be several years before production starts, she added.
To help resolve this potential hangover on the stock, Kinross has an aggressive work plan in place for Dixie. The miner intends to drill 200,000 meters in the LP Fault zone; determine the extent of mineralization in this zone at depth and laterally beyond the central area; and explore for additional Red Lake-type deposits, including definition drilling of the high-grade Limb, Hing and Midwest targets.
Stifel GMP has a Buy rating and a CA$14 per share price target on Kinross, currently trading at around CA$6.74 per share.
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Important Disclaimers for Stifel Canada, Kinross Gold Corp., Dec. 9, 2021
I, Ingrid Rico, certify that the views expressed in this research report accurately reflect my personal views about the subject securities or issuers; and I, Ingrid Rico, certify that no part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this research report. Our European Policy for Managing Research Conflicts of Interest is available at www.stifel.com/institutional/ImportandDisclosures.
Kinross Gold is provided with non-investment banking securities related services by Stifel Canada or an affiliate or was provided with non- investment banking securities related services by Stifel Canada or an affiliate within the past 12 months.
Stifel Canada or an affiliate expects to receive or intends to seek compensation for investment banking services from Kinross Gold in the next 3 months.
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The recommendation contained in this report was produced at 9 December 2021 08:53EST and disseminated at 9 December 2021 08:53EST.
