If Kinross Gold Corp. had US$705-million in cash at the end of the third quarter, why did it decide to raise another US$360-million in a bought deal offering of 20.9 million common shares at US$17.25 each?

The company said it will use the money to bolster its capital position and for general corporate purposes, but investors are surely wondering if any acquisitions are in the making.

An over-allotment option of 3.14 million shares would bring total proceeds from the offering to US$415-million. Credit Suisse analyst Anita Soni also noted that Kinross is expected to have another US$541-million in operating cash flow in 2009 (based on US$700 per ounce gold), while it has US$700-million in obligations this year (including capex of US$460M).

“Kinross is well funded with its current cash and cash flow position and does not require additional funds for its current pipeline of growth,” she told clients, adding that the company is strengthening its coffers to capitalize on acquisition opportunities to shore up its growth profile.

Ms. Soni said “tack on” acquisitions like the Lobo Marte gold project deal with Teck Cominco Ltd. for about US$250-million, plus a royalty, in November, are possible. However, she also said a larger transaction in the senior or mid-tier space could surface, with Yamana Gold Inc. and Teck’s Pogo mine as likely candidates.

“Yamana has a good project pipeline but it does not have the near-term capital to fund that growth,” Ms. Soni said. “An acquisition of Yamana would deliver a project pipeline and growth from 2009-2011 even using our conservative forecasts for Yamana. It is also likely that Kinross would be able to realize additional ounces beyond what we forecast for Yamana given Kinross’s ability to fund growth.”

Yamana’s current multiple based on metal and share prices is around 1.2x, while Kinross is at 1.5x.

The analyst added that Agnico-Eagle Mines Ltd. is too expensive, while Goldcorp Inc. and Barrick Gold Corp. are too big in terms of market capitalization.

Jonathan Ratner

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