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Kinross Gold vulnerable to takeover bid: analysts

'Our global exploration effort continues to bear fruit,' says Kinross Gold CEO Tye Burt. REUTERS/Mike Cassese

MIKE CASSESE/REUTERS

Rising costs coupled with delays at key growth projects have driven down Kinross Gold's market value, leaving one of Canada's top miners ripe for a takeover, analysts say.

Kinross shares dropped more than 19 per cent earlier this month when the company said the expansion of its Tasiast gold mine in Mauritania faced delays of up to nine months and that it would take a big non-cash writedown on the project.

"Current goodwill stands at $4.6-billion and it would not come as a surprise if the entire amount was written off," CIBC World Markets analyst Barry Cooper wrote in a Jan. 24 note to clients.

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Cooper added that high capital costs at Tasiast may adversely affect the project's output and estimated that production will average 1.1 million ounces over the first five years, down about 400,000 ounces annually from Kinross's estimates.

Cooper slashed his price target for the miner's U.S.-listed shares to $15 from $20, noting: "Kinross will not have any production growth for more than two years and will be susceptible to rising costs."

The company's shares slid 1.77 per cent to C$10.52 on Wednesday morning on the Toronto Stock Exchange. The U.S. shares were down 1.89 per cent at $10.38.

RED BACK WEIGHS

Kinross got Tasiast as part of the takeover of Red Back Mining in August 2010. The $7.1-billion acquisition vaulted Kinross into the big leagues, transforming it into one of the fastest-growing gold miners in the world.

But the deal has dragged on the miner. Its shares fell more than 35 per cent last year and its market cap is currently around $12-billion, back near to the level it was just prior to the Aug. 2, 2010 announcement of the Red Back takeover.

The decline "has left Kinross exposed to a takeover bid," said Paradigm Capital analyst Don MacLean in a note to clients on Wednesday.

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With a diversified portfolio of assets, strong mid-term growth and long-life mines, Kinross would be an attractive target for an elite handful of top mining firms like Barrick Gold, Newmont Mining and AngloGold Ashanti , he said.

MacLean maintained his "buy" rating on the shares, but has the price target listed as "under review".

Kinross owns mines and development projects around the world, including the Lobo-Marte gold project in Chile and the Fruta del Norte project in Ecuador. The miner expects to produce 2.6 million-2.8 million gold equivalent ounces this year.

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