Kinross Kicks Off the Next Yukon Gold Rush

 |  Includes: KGC, UNDWF
by: Anomalous Investments

Kinross Gold (NYSE: KGC, TSX: K) may have kicked off the second Yukon gold rush after it announced on Thursday an acquisition bid for micro-cap exploration company Underworld Resources (TSX-V: UW, USOTC: OTC:UNDWF), which values Underworld at approximately US$ 135 million (C$ 139 million).

Kinross has offered 0.141 of a Kinross common share, plus $0.01 in cash, for Underworld Resources. Based on the March 10th closing price of C$18.54 per Kinross common share on the Toronto Stock Exchange, the implied offer price was approximately C$2.62 per common share of Underworld Resources.

The offer represented a premium of 36.0% over the closing price of Underworld’s shares on March 10th, the last day of trading prior to the announcement of the offer, and a premium of 50.2% over the volume weighted average prices of the common shares of both companies for the 20 trading days immediately prior to March 10th. Prior to this bid, Kinross had already held approximately 8.5% of the common shares of Underworld Resources.

Underworld’s key asset is the White Gold project, located in the Tintina gold belt, approximately 95 km south of Dawson City, Yukon Territory, Canada. It was only two months ago, in January 2010, that Underworld announced its maiden resource estimate at the White Gold project, which showed indicated and inferred gold resources approximating 1.5 million ounces.

This transaction is noteworthy for the following reasons:

  • Underworld Resources is a very early-stage exploration company, having released its initial resource estimate on the White Gold project only 2 months ago. Underworld had not yet even completed any type of independent economic assessment on the project, which is typical in the industry, which illustrates Kinross’ strong desire to secure this asset during its early days.
  • The Yukon has been a hot area for exploration over the past couple of years, after Underworld initially announced its “discovery” in July 2008. This year, several junior companies are conducting extensive exploration programs in the Yukon. Notable companies with high profile exploration programs include ATAC Resources (TSX-V: ATC, USOTC: ATADF.PK) and Kaminak Gold (TSX-V: KAM, USOTC: KMKGF.PK).

This transaction also follows Goldcorp’s (NYSE: GG) recent C$238 million (US$ 227 million) acquisition of Canplats (TSX-V: CPQ, USOTC: OTC:CPQRF). The successful acquisition followed a bidding war with Minera Penmont, which is a joint-venture between Newmont Mining (NYSE: NEM) and Fresnillo Plc (UK: FRES, US: OTCPK:FNLPF). In the case of Canplats, however, while the company was still early-sage, Canplats had already defined approximately 4 million ounces of gold, and had already completed a detailed, independent, Preliminary Economic Assessment (PEA).

This bid by Kinross highlights that intermediate and major gold mining companies are hungry for good projects and are increasingly willing to spend money on early-stage exploration and development companies. This trend is likely to continue, and accelerate, for high-potential projects in good jurisdictions. If any of the other junior companies active in the Yukon are successful during this year’s drilling programs, additional acquisition bids could be forthcoming in a very short period of time.

Matthew T. Schroeder is the President of Anomalous Investments, an independent, value-added investment research company based in Hong Kong, focused on finding small, undiscovered Special Situations in the natural resources industry. AI’s goal is to identify top centile (1%) investments, on a risk/reward basis, in the natural resources industry. Particular focus is on gold, silver, oil & gas and agriculture. Mr. Schroeder can be reached at

Disclosure: Author holds a long position in Kaminak Gold Corp.