17 Feb 2010 12:56

Kinross expects to close Highland Gold asset deal in April

MOSCOW. Feb 17 (Interfax) - Kinross Gold expects to close a deal to buy assets from Highland Gold Mining (HGM) plc, which will give billionaire Roman Abramovich a small stake in the Canadian gold major, in April, the head of Kinross Gold's Russia office said at a conference.

"I'm hoping the deal will close in April," Lou Naumovsky said.

Kinross said in January when it announced the deal that it expected the deal to close by the third quarter of 2010.

Millhouse LLC, a holding company for Abramovich and his business partners, will acquire a minority stake in Kinross Gold in exchange for two gold properties in Russia's Far Eastern Chukotka region. Kinross said in January that it had agreed to buy the Dvoinoye and Vodorazdelnoye deposits from Millhouse for $368 million for a cash consideration of $165 million plus 10.56 million new Kinross shares.

The new shares are valued at $203 million as of January 19, when the deal was announced, and will amount to approximately 1.5% of Kinross Gold's issued share capital based on existing issued shares without warrants.

Both properties are located approximately 90 km north of Kinross Gold's Kupol operation in the Chukotka region. Kinross plans to process ore from Dvoinoye at the existing Kupol mill, pursuant to an ore purchase agreement with Kinross Gold's 75%-owned Chukotka Mining and Geological Company, the owner of the Kupol mine, Kinross said.

Kinross Gold's Naumovsky said on February 17 that the two properties contained a resource of 3.5 million-3.9 million tonnes graded at 19 g/t for Au. He said the State Reserves Commission (GKZ) would approve the parameters "within days."

The high-grade Dvoinoye deposit currently hosts an open pit mine which the owner has operated six months per year, with throughput of approximately 250 tonnes per day. Kinross plans to develop the Dvoinoye operation as a larger underground mine, and to transport the ore to the Kupol mill for processing.

The Vodorazdelnaya property encompasses approximately 922 square kilometres and includes an exploration and mining licence. Historic work on the property has identified targets for further exploration.

The transaction is subject to certain conditions, including satisfactory completion of due diligence by Kinross within sixty days, and various third-party, regulatory, and governmental approvals in Russia, as well as TSX approval and the approval and execution of various agreements. A condition for the closing of the transaction is the successful registration of gold reserves over 50 tonnes (approximately 1,608,000 ounces) and approval of foreign ownership of Dvoinoye as a strategic deposit by the Russian Government, Kinross said in January.

Millhouse has been the main shareholder in HGM since the end of 2007. Shareholders in HGM, which currently mines the Mnogovershinnoye gold deposit in the Khabarovsk territory, also include Barrick Gold and Tremadon Ventures, whose beneficiaries are Evraz Group shareholders Alexander Abramov and Alexander Frolov.

Kinross develops 11 gold deposits in various countries. It produced 2.23 million oz gold equivalent in 2009, and is targeting 2.2 million oz this year.