Birth of Kinross: 1992--93

Gold derived its name from the Latin aurum and its luster, malleability, and anticorrosive qualities have made it a prized possession since the earliest civilizations. More than 170 years after the establishment of the gold standard in 1821, several Canadian companies began discussions to unite and create a new company. Two of these companies were publicly held and controlled gold mining interests; the third was the equally-owned offspring of one of the gold industry's titans, Placer Dome, Inc., and Dundee Bancorp. The discussions concretized in May 1993 when Plexus Resources Corporation, CMP Resources Ltd., and 1021105 Ontario Corp. pooled their interests and became Kinross Gold Corporation. For their contributions, Placer Dome and Dundee Bancorp gained a stake in the new company, with the former owning 17 percent and the latter weighing in with 24 percent (both later sold their shares).

Kinross Gold's key management came from Dundee and Plexus, and all had previous experience in the gold industry. Robert Buchan, Brian Penny, and G.A. (Gord) McCreary came over from Dundee; Art Ditto, from Plexus. Buchan became the upstart's chairman of the board and CEO; Ditto, president and COO; Penny, CFO; and McCreary, vice-president of investor relations and corporate development. By way of a 24 percent interest in Nevada's Denton-Rawhide Mine (formerly owned by Plexus) as well as properties gained from a subsequent deal with Nerco, Kinross had officially joined the gold mining and processing community at a time when gold prices were strong. Next came a 56 percent stake in Falconbridge Gold, which had substantial mining operations in Zimbabwe (the Golden Kopje and Blanket mines), and by the end of the year, the remaining 44 percent for full ownership.

With the Falconbridge deal came the Hoyle Pond mine, in Timmins, Ontario. Not only was this property an extraordinary acquisition, but it later became one of three Kinross flagship operations. By the end of 1993, Hoyle Pond produced 60,000 ounces, the vast majority of the fledgling company's total output of 67,702 ounces of gold, for revenues of $26.3 million. Another $5.9 million came from selling 1.3 million ounces of silver and overall mining revenues topped $32.2 million for its first year of business. From its earliest days Kinross adopted a sound business plan: high yields, low costs, and a modest hedging program as insurance against market downturns. Hedging, used by most precious metals producers, meant arranging to sell future amounts of gold at 'forward' or fixed prices, thereby allowing both seller and buyer to circumvent the current gold market.

The practice, though widely accepted, had its detractors; some believed forward sales robbed shareholders of market upswings, forcing producers to fulfill contracts for the earlier agreed-upon prices and losing out on the extra profits when prices soared. For the bigger companies, this was not a problem--they filled orders at contracted prices and sold additional reserves at the higher prices. Yet bantam producers like Kinross, without massive reserves, could be locked into contracts and lose out on market spikes. Although Kinross's hedging was on a small scale compared to several other gold producers, these forward-sale contracts worked in their favor in 1993 when the average gold spot price was $360 per ounce and Kinross had forward sales locked in for $388 per ounce. Its silver fared nearly as well, with the spot price hitting a low of $4.30 per ounce, while Kinross received $4.47 per ounce.

New Kid on the Block: 1994--96

The next year, 1994, Kinross brought its Hoyle Pond to greater production and annual revenues leapt to $92.1 million, with both gold and silver production up substantially (174,165 ounces of gold at $66.9 million, and 5.2 million ounces of silver for $25.2 million). The soaring revenue represented an almost 186 percent increase over its freshman year. This year also brought the debut of a Kinross mascot, a golden retriever, which appeared on the company's annual report. Now a medium-sized or 'second-tier' producer, Kinross soon found out how much size really did matter when it went up against industry behemoth Barrick Gold Corporation to acquire the Toronto-based Lac Minerals Ltd. Kinross and another similar-sized Toronto mining company, TVX Gold Inc., planned to merge and split Lac's mining properties. Neither the merger nor the takeover took place; the Toronto-based Barrick's size, reputation, and ready cash reserves to finance the deal were impossible to beat.

With 1995 came a spate of Kinross purchases, including the Macassa Mine of Kirkland Lake, Ontario (ironically, from Barrick); increased ownership of the Denton-Rawhide Mine (for a total of 49 percent); a 25 percent stake in the Aginskoe project in Kamchatka, Russia; and a stake in the Goldbanks Project in Nevada. By year's end, there were eight producing gold mines (three in Canada, three in the United States, and two in Zimbabwe) and three producing silver mines (all U.S.). Year-end revenues climbed to just under $133.3 million, up nearly 45 percent from the previous year. In 1996 came high gold production (hitting 450,000 ounces) and troubles in Zimbabwe with the Golden Kopje mine, due mostly to extreme weather. Yet despite writedowns on Kopje, Kinross finished the year with revenues up by 54 percent, to $208.5 million.

Bouncing Back After a Market Crash: 1997--99

Kinross and competing gold producers had a rude awakening in 1997 when gold prices fell to $295 per ounce. No one, it seemed, was immune to sizeable market shifts regardless of hedging programs. Industry giant Barrick Gold's worth tumbled from $15.4 billion to $8.6 billion, while Kinross suffered its first annual loss. Though Kinross generated $183.5 million in revenues, its loss of $83.7 million came from writedowns on several mines (Kopje, QR, DeLamar, and Macassa) and the realization that the Goldbanks project, in which the company had increased its investment, was going nowhere. Luckily it was the dark before the dawn; a high profile merger was on the horizon.

In April 1998 Kinross bought into the Eastern Goldfields region, covering 533 square kilometers of land in Western Australia. On the heels of this deal the company joined forces with Denver, Colorado-based Amax Gold. Amax, which had been spun off from its parent company in 1987 and was 59 percent owned by Cyprus Amax Minerals Company, was a growing medium-sized mining company much like Kinross. The combination of their assets, however, was a coup for both--Amax brought three major mining operations (Alaska's Fort Knox, a half interest in the Kubaka Mine in Russia, and another half interest in Chile's Refugio Mine) as well as smaller properties while Kinross offered the stability of working capital and cash on hand. The merger gave Kinross reserves totaling 27 million ounces and increased annual gold production to 1.1 million ounces. Though the company was still called Kinross Gold Corporation, Amax was renamed Kinam Gold and operated as the company's largest subsidiary.

Kinross achieved a primary goal in the late 1990s by getting its production costs to under $200 per ounce, only to have them bounce back up by the end of 1999. Unusually harsh climates in Alaska affected Fort Knox's production, while union skirmishes and a tragedy at Hoyle Pond sent per ounce costs soaring from a low of $178 to $243, before coming down to $210 by the end of the year. On the positive side, Hoyle Pond bought out Royal Oak Mines Ltd.'s neighboring interests in Timmins, Ontario, and Kinross upped its ownership of the Kubaka Mine from 50 to 54.7 percent.

Then gold prices crashed again, with the industry suffering its lowest price in two decades. Such leaders as Barrick and Placer Dome came under increasing fire for their hedging practices and were accused of controlling the market with their vast reserves; second-tier producer Kinross took a beating on the stock exchanges but maintained high ratings by analysts. Mike Westcott of Goepel McDermid Securities believed Kinross was 'one of the better management groups out there,' while the Toronto Globe and Mail's Dave Ebner praised the company's 'strong management and clear vision' in a June 1999 profile.

In early 1999 Kinross bought out La Teko Resources Ltd., then went on to purchase Newmont Mining Corporation's interest in the True North deposit in Alaska. Kinross finished 1999 with revenues of $318 million, an increase of nearly 15 percent over 1998, though earnings were still at a loss of $231.2 million for the year.

The New Millennium: 2000 and Beyond

In the first quarter of 2000, Kinross bought a 33 percent interest in Dayton Mining Corporation and then announced that quarterly earnings were once again a loss. Production costs, though not as substantial as the previous year ($7.8 million vs. $10 million), were high while yield was down at the Kubaka, Refugio, Denton-Rawhide, and Blanket mines (though up at Fort Knox and Hoyle Pond), and no gold had come from Macassa, since it had been taken out of service. To make matters worse, in May analysts at Goldman Sachs and Lehman Brothers downgraded the stock of several gold companies, including the United States' top producer, Newmont Mining Corporation, and Kinross. Management at Kinross was sure the reverse would be temporary; the company's balance sheet remained healthy and Kinross was considered under-hedged by industry standards. With any upswing in gold spot prices, Kinross was poised to reap the benefits. In addition, ongoing exploration and development at its mining properties was expected to bring annual production levels up to two million ounces in the near future.

Principal Competitors: Lonmin Plc; Phelps Dodge Corporation; Companhia Vale do Rio Doce; Barrick Gold Corporation; Newmont Mining Corporation; Placer Dome, Inc.