Bugging out

3 August 2010 By Robert Cyran Follow @rob_cyran

Miner Kinross is buying Red Back Mining, hinting its target’s Mauritanian mine contains more gold than thought. To justify the price, both that and the gold bugs’ broader narrative need to play out. With Kinross shares off 5 percent, even some enthusiasts see that as a stretch.

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Kinross Gold , a Canadabased and dual Canada/U.S.listed gold miner, said late on Aug. 2 it had agreed to pay $7.1 billion in stock to buy Red Back Mining , a Canadian listed gold producer that operates two mines in Africa. Red Back shareholders will receive 1.778 common shares in Kinross and 0.11 Kinross warrants for each Red Back share. The warrants will be listed and have an exercise price of $21.30, a 30 percent premium to the July 30 closing value of Kinross shares.

The combined value of the shares and warrants is C$30.50 per Red Back share, a 17 percent premium to the July 30 close. After the transaction, Red Back investors will hold 37 percent of the combined company.

Kinross in May paid $600 million for a 9.4 percent stake in Red Back, or C$25 a share.

Kinross shares lost more than 5 percent in morning trade on Aug. 3.

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