Kinross Gold Corp. K-T is selling its Russian mines for US$340-million – half the previously negotiated price – after Moscow imposed limits on the size of the sale.
Kinross suspended operations at its two properties in Siberia in March in response to Russia’s invasion of Ukraine. In April, Canada’s third-largest gold producer announced it would sell the mines to Highland Gold Mining Ltd. for US$680-million, with US$100-million up front and the remainder to be paid over five years.
On Wednesday, Kinross announced the transaction will now consist of a US$300-million initial payment, which the Toronto-based company has already received, and US$40-million a year from now.
The sale to Highland Gold went to a recently formed Russian government agency for approval – the Sub-commission on the Control of Foreign Investments – and, in a press release, Kinross said the agency would only approve the transaction “for a purchase price not exceeding US$340-million.”
Russian regulations deny the company the right to appeal the government agency’s decision.
Kinross has operated in Russia for 25 years and had 2,000 employees at its Siberian properties. In an interview, chief executive Paul Rollinson said he had mixed emotions about leaving the region. He said the reworked sale “represented closure for Kinross, as we have no further liabilities in Russia and no exposure to potential sanctions.”
When Kinross suspended operations in Siberia, most mining analysts wrote off the value of the company’s Russian properties. In a report Wednesday, analyst Tanya Jakusconek at Scotiabank said: “Although the price received is lower in total consideration than that previously agreed upon, we view this announcement as mildly positive as Kinross has finally exited Russia with US$300-million in cash today – the market had been concerned that Kinross would not receive any cash – with only a small deferred portion next year.”
The Siberian properties accounted for approximately 12 per cent of Kinross’s net asset value, and in January, prior to the Russian invasion of Ukraine, the company forecast the mines would account for 13 per cent of its annual gold production.
Jersey-based Highland Gold is run by Russian mining executive Vladislav Sviblov and owned by investment firm Fortiana Holdings Ltd. Before being acquired by Fortiana last year and privatized, Russian oligarch Roman Abramovich was one of Highland Gold’s biggest shareholders, with a 40-per-cent stake.
Barrick Gold Corp. also once owned a minority stake in Highland Gold as part of its global expansion strategy. On acquiring the position in 2003, then-CEO Greg Wilkins said: “We are making this investment due to the markedly improved investment climate in Russia.” Barrick sold the holding in 2012, saying it was “non-core” to its portfolio.
Kinross plans to use the proceeds from the Russian sale to pay down debt taken on as part of its $1.8-billion acquisition of Great Bear Resources Ltd., which closed in February. Great Bear owns properties in Northwestern Ontario.
Kinross has two major gold mines in Africa, along with properties in Canada, the U.S., Chile and Brazil. In a report, analyst Mike Parkin at National Bank Financial said: “We believe the conclusion of the exit from Russia could spark a re-rating in Kinross’s shares, which we feel is well warranted given the strong portfolio of assets remaining that is heavily tied to the Americas.”
Kinross exited Russia as the Canadian government ramped up sanctions against the country, potentially curtailing the company’s ability to continue negotiations on its Siberian assets. In a report Tuesday, law firm Fasken said the new rules, announced last week, “have the potential to impact many Canadian businesses with connections to Russia, particularly mining, energy, and chemical companies or companies servicing those sectors.”
The Canadian miner is also cutting ties with the region in the wake of Russian court decisions that have gone against Western companies.
Last year, Toronto-based Entertainment One Ltd. – owned by Rhode Island-based Hasbro Inc. – sued a Russian entrepreneur over unauthorized use of its animated character Peppa Pig. In March, a Russian judge dismissed the claim, citing “unfriendly actions of the United States of America and affiliated foreign countries.” Lawyers said the revenge ruling opened the door to breach of contracts and the violation of intellectual property laws by Russian businesses.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.