TORONTO – Kinrooss Gold said on Friday it “rejects” a negative recommendation by proxy advisory firm Institutional Shareholder Services on the gold-miner's $7-billion acquisition of West African-focused Red Back Mining.

The Toronto-based gold miner agreed in early August to buy West Africa-focused Red Back for about $7-billion in shares and warrants.

The deal has been criticised as being too dilutive, and some shareholders and analysts suggested Kinross may be overpaying.

Red Back's two producing mines are Tasiast, in Mauritania, and Chirano in Ghana, and the question of value largely hangs on the growth potential at Tasiast, which already has reserves of five-million ounces of gold.

Kinross CEO Tye Burt has literally asked shareholders to trust him that the deal will be accretive, citing extensive, "boots on the ground" due diligence conducted this year, but says the company can't give any more details for now.

In a relatively strongly worded statement on Friday, Kinross said ISS's conclusions “reflect a lack of technical understanding and knowledge of early-stage mining property valuation, and the potential to create value for shareholders by identifying and acquiring high-potential properties”.

The gold-miner also pointed out that the deal has received a positive recommendation from another firm, Glass, Lewis and Co.

“The companies strongly recommend that their shareholders vote in favour of the transaction based on previously stated unanimous recommendations by the boards of directors and management of both companies, the view of Glass Lewis, a total of six fairness opinions from respected financial institutions, and the exhaustive due diligence conducted to support the transaction.”

Shareholders in both Kinross and Red Back are scheduled to vote on September 15.

Kinross already issued a statement earlier this week, in response to “questions” from ISS, in which it expanded on the due diligence it did on Red Back's assets, plans for expansion at the company's Tasiast mine, in Mauritania, and the rationale for the deal.

“It is standard practice in the mining industry to make acquisitions based on in-depth, professional evaluations of the expected long-term potential of an ore body, even though that potential has not been clearly delineated according to NI 43-101 requirements at the time of acquisition,” Kinross argued on Friday.
 

Source:miningweekly