Why the Kinross Gold share price plunged 10% today
Written by Jitendra Parashar at The Motley Fool Canada
Kinross Gold’s The (TSX: K) (NYSE: KGC) share price fell nearly 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 brought Kinross Gold’s cumulative losses to 28%, compared to more than 20% advances in the TSX Composite Index.
Kinross Gold is a Toronto-based gold mining company that also focuses on the exploration and acquisition of gold-related properties. It currently has a market cap of $ 9.3 billion and a dividend yield of around 2.1%.
Earlier today, Kinross Gold revealed plans to acquire Vancouver-based gold exploration company Resources of the Great Bear (TSXV: GBR) in a transaction valued at approximately $ 1.8 billion. Kinross noted that this would translate to $ 29 per Great Bear common share on a fully diluted basis – significantly higher than the closing GBR share price on Wednesday 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 this news broke today.
In contrast, Kinross Gold investors apparently found the deal too expensive and not worth paying that huge premium, which sparked a sell off in K shares today.
In order to justify the deal, Kinross, in its press release, said that Great Bear’s flagship product 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 mining complex and strengthen Kinross’ long-term production prospects.”
Great Bear requires shareholder approval for this acquisition transaction. Nevertheless, the deal has already been unanimously approved by the boards of directors of both companies, which is expected to be finalized in the first quarter of next year.
In the recent past, Kinross Gold has faced many challenges due to a plant 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. While investors may find his deal to acquire Great Bear expensive at the moment, it could pay off well in the long term, I think, due to the great potential of the Dixie Project. This is why investors, who are looking for exposure to gold, may want to buy Kinross Gold shares in a downturn now.
The post Why Kinross Gold Shares Dipped 10% Today appeared first on The Motley Fool Canada.
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The Motley Fool has no position in any of the stocks mentioned. Foolish contributor Jitendra Parashar has no position in any of the stocks mentioned.