Is Kinross a Takeover Target?

Mar.21.11 | About: Kinross Gold (KGC)

By Boyd Erman

Shares of Kinross Gold (NYSE:KGC) have taken such a beating relative to the company's gold mining peers that there's a buzz on some trading desks that the miner is a ripe takeover target.

Shares of Kinross are down almost 23 per cent so far this year, as of Friday. By comparison, Goldcorp Inc. (NYSE:GG) has gained 2 per cent, Barrick Gold Corp. (NYSE:ABX) has lost 8 per cent and Newmont Mining Corp (NYSE:NEM) is down 17 per cent.

The result is that in price-to-net-asset value, Kinross looks cheap. According to a recent analyst report from Canaccord Genuity, Kinross is trading at a substantial discount to peers in the senior and intermediate gold group. Kinross was trading at 14.98 at 2:56 p.m. today.

There's no sense that anything is imminently going to happen to Kinross. But when traders see a valuation gap like that they can't help but wonder whether somebody is going to try to take advantage.

There's a chance some keen buyer might try to pick up Kinross's reserves cheap, especially if the company can continue to prove out the upside at its newly acquired African assets.

How cheap is Kinross?
According to a report last month by Canaccord Genuity, the stock was trading at around 0.85 times net asset value, while the senior/intermediate producer average is 1.15 times. That's a significant amount of value an acquirer with a better valuation could extract.

In simple market capitalization, Kinross now clocks in at $16.5-billion. Barrick, the heavyweight, is at almost $49-billion, Goldcorp is worth $37-million and Newmont is at $25-billion (U.S.).