Kinross eyes stake in True North

Through a private placement in La Teko Resources (LAO-V), Kinross Gold (K-T) has demonstrated its interest in purchasing the majority share of the True North deposit in Alaska, held by Newmont Mining (NEM-N).

Kinross recently placed 2 million units at US85cents each, for gross proceeds of US$1.7 million. Each unit consists of one share and one share purchase warrant, with each warrant exercisable at US$1.05 in the first year, and US$1.25 in the second year. The private placement is expected to close by the end of April.

The deal also saw La Teko grant Kinross the right of first refusal to finance La Teko’s buyout of Newmont’s 65% interest in True North.

Under the True North joint-venture agreement, La Teko has the right of first refusal to repurchase Newmont’s stake in the Fairbanks-area gold project. To date, the Denver-based major has advanced US$6 million to La Teko and spent US$11.5 million on exploration and development on its way to earning the controlling interest. Newmont’s 1998 budget calls for another US$3.6 million in expenditures.

The funds to repurchase True North would come in the form of a 120-day, interest-free loan from Kinross. La Teko would be permitted to repay the loan by forming a 50-50 partnership with Kinross for the development of the property. In that case, La Teko could pay down the remainder of the loan in cash or by issuing shares to Kinross at a 10% market premium.

La Teko President Gerald Carlson calls the Kinross transaction “a strategic move” for his company. However, Newmont spokesman Doug Hock points out that his company has no plans to sell its True North stake at this point.

By pursuing a stake in True North, Kinross may be betting that Newmont is disappointed with the progress on the 14,000-acre property. At year-end, Newmont reported a resource at True North of 10.2 million tons grading 0.078 oz. gold per ton, for just under 800,000 contained ounces. For a company the size of Newmont, which has to replace three million oz. per year, 65% of 800,000 oz. may not pass muster.

“If Newmont considers selling, Kinross is a logical buyer,” Carlson says, because Kinross is in the midst of a merger transaction with Amax Gold (AU-N), which operates the Fort Knox gold mine, about 5 miles from True North. Mining True North as a satellite operation and trucking the ore to the Fort Knox mill would lower construction and infrastructure costs at True North. Administration could be handled from Fort Knox, while the mining fleet could be shared between both operations.

In the meantime, Newmont is pushing ahead with exploration, looking for additional sources of mineralization, particularly on the 4,000 acres of ground recently added to the property to the northeast and southwest of the main deposit.

As for Kinross’ private placement, La Teko plans to use the funds for working capital and for exploration on several of its other properties, including the Discovery claims in the Circle district northeast of Fairbanks and the Scheelite Dome prospect in the Yukon.

La Teko currently has 23.5 million share outstanding. With the 2 million shares from La Teko’s treasury, Kinross would own about 8% of the outstanding shares, and if Kinross takes down the 2 million warrants, its stake jumps to 14%. This excludes any shares that could come from the payoff of a True North loan.

In other news, Silverado Gold Mines (GOLDF-Q) has terminated its option to buy La Teko’s Ryan Lode deposit, situated in the western part of the Fairbanks district. La Teko plans to keep the property on care and maintenance while it seeks a new joint-venture partner.