Why Kinross Gold stock price plunged 10% today
Image source: Getty Images.
Kinross Gold’s (TSX:K)(NYSE:KGC) The stock price fell almost 10% on Thursday. At the time of writing, its stock was trading at $6.74 per share, down 9.5% from the previous session’s closing price. Today’s steep declines extended Kinross Gold’s year-to-date losses to 28%, compared to advances of more than 20% in the TSX Composite Index.
Kinross Gold is a Toronto-based gold mining company that also focuses on exploring for and acquiring gold-related properties. It currently has a market capitalization of $9.3 billion and a dividend yield of around 2.1%.
Earlier today, Kinross Gold revealed plans to acquire the Vancouver-based gold exploration company Great Bear Resources (TSXV:GBR) in a transaction valued at approximately $1.8 billion. Kinross Noted that would translate to $29 per Great Bear common share on a fully diluted basis — significantly higher than GBR’s Wednesday closing price of $22.93 per share. This is one of the reasons Great Bear’s stock price rose about 24.4% to $28.52 per share after the news broke today.
In contrast, Kinross Gold investors apparently found the deal too expensive and not worth paying the huge premium, which sparked a selloff in K shares today.
In order to justify the agreement, Kinross, in its press release, stated that the flagship of Great Bear Dixie Project is “ideally located in a very attractive jurisdiction”. He added that the project “has excellent potential to become a premier deposit that could support a large, long-lived mine complex and bolster Kinross’ long-term production prospects.”
Great Bear is seeking shareholder approval for this acquisition. Nonetheless, the deal has already been unanimously approved by the boards of both companies, which is expected to close in the first quarter of next year.
In the recent past, Kinross Gold faced many challenges due to a mill fire at its Tasiast site. On the positive side, its long-term growth prospects remain largely solid with an expected increase in production next year. Although investors may find its deal to acquire Great Bear expensive at the moment, it could be profitable in the long term, I think, because of the great potential of the Dixie project. That’s why investors – who are looking for exposure to gold – may want to buy Kinross Gold shares down now.