Kinross selling its Russian business to Highland Gold for US$680-million

Kinross Gold Corp. K-T is selling its Siberian mining business to a Russian operator at a discount and will have to wait years to get the bulk of the payments.

Toronto-based Kinross put its Siberian mines up for sale after the Russian invasion of Ukraine made it untenable to continue operating there. Kinross is Canada’s third-biggest gold producer, after Barrick Gold Corp. ABX-T and Agnico Eagle Mines Ltd. AEM-T

On Tuesday, Kinross said in a statement that it intends to sell its Kupol mine and Udinsk development project for US$680-million in cash to Russia’s Highland Gold Mining Ltd. Highland already operates in the Chukotka and Khabarovsk regions, where Kinross’s properties are located.

Now that Russia is a pariah on the international investment stage, the list of potential buyers for the Siberian operations was expected to be limited, and analysts did not expect the company to receive fair market value, which was about US$900-million.

Jersey-based Highland Gold is run by well-known Russian mining executive Vladislav Sviblov and owned by investment firm Fortiana Holdings Ltd. Before being acquired by Fortiana last year and privatized, Russian oligarch Roman Abramovich was one of Highland Gold’s biggest shareholders, with a 40-per-cent stake.

Without Russia, this gold producer has a new shine

Kinross will only receive US$100-million up front and is due to receive the balance in tranches over the next five years. The deferred payments are secured by financial guarantees, including share pledges. Given the extensive and still-expanding sanctions against Russia, some analysts questioned how Kinross can logistically receive the funds.

Paul Rollinson, the chief executive officer of Kinross, declined an interview request.

Exiting Russia leaves Kinross with a financial hole to fill. Last year Russia accounted for 23 per cent of Kinross’s production, and the Kupol mine complex was its most profitable segment, generating a profit of US$443-million.

From a geopolitical risk viewpoint, however, Kinross will now be seen as a less risky bet for investors. The company has long traded at a discount to peers such as Agnico Eagle, which has most of its mines in safer jurisdictions such as Canada and Australia.

Kinross’s biggest remaining mines are its Paracatu operation in Brazil and Tasiast property in Mauritania. After Kupol, Paracatu was its best-performing asset last year, making US$384-million in profit. Tasiast, however, struggled and lost US$67-million, owing in large part to a mill fire that curtailed production significantly. Output at the West African mine is expected to rebound strongly this year.

Analysts have speculated that Kinross without its Russian operations makes it a more attractive acquisition target. In a report last week outlining the 10 most likely M&A partners in the gold mining sector, Scotia Capital Inc. singled out a Kinross acquisition by Barrick Gold as making the most sense.

Buying Kinross would see Barrick once again becoming the world’s biggest mining company by production. Kinross last year acquired Canadian gold development company Great Bear Resources Ltd., which has a promising project in Red Lake, Ont. Barrick has made it clear that it wants to expand its portfolio in Canada, where it has only one mine.

Founded in the 1990s, Kinross made its big move into Russia in 2007 with the acquisition of Bema Gold Corp. for US$3.2-billion. Soon after, it put the Kupol mine into production. Kinross managed to come through the 2014 Russian invasion of Crimea relatively unscathed and, in 2019, doubled down on Russia by acquiring Udinsk for US$283-million. It had plans to put Udinsk into production in the next few years.

Kinross’s exit from Russia mirrors the experience of another large Canadian gold miner that was also forced to leave a politically unstable region prematurely. Earlier this week, Centerra Gold Corp. announced its intentions to sell its giant Kumtor gold mine in Kyrgyzstan for $972-million to the government. Last year, the former Soviet republic seized the mine, alleging that Centerra had committed tax fraud and environmental infractions. The company disputed the allegations and brought an international arbitration suit against Kyrgyzstan. The sale price for Kumtor was less than a fifth of its value before it was seized.

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