Kinross, Red Back make a great team

Kinross Gold just can’t keep out of the headlines these days, and in a good way.

• Over the holiday weekend in much of Canada, Kinross and Red Back Mining executives hammered out a friendly, all-share merger that values Red Back at US$7.1 billion, or a 21% premium for Red Back shareholders. Ownership in the resulting beefed-up gold major will be split 63-37 between existing Kinross and Red Back shareholders, respectively.

Both sides come out winners here: Red Back shareholders get more financial and operational depth, while Kinross shareholders fill the project pipeline with high-quality, early-stage assets in Ghana and Mauritania. Red Back chairman Lukas Lundin and CEO Richard Clark will join the Kinross board.

The new Kinross will boast 10 operating mines and four development projects in eight countries, generating a pro forma 2.6-2.7 million gold-equivalent oz. in 2010, while its pro forma reserve base will rise to 53.2 million gold-equivalent oz., with another 19.5 million gold-equivalent oz. in the resource category.

It’s still a long way to go to catch up to industry leader Barrick Gold, however. Barrick says it’s on track to produce 7.6-8.0 million oz. gold this year, up from 7.4 million oz. gold, tapping into an astounding reserve base of 139.7 million oz. gold, plus another 61.8 million oz. gold in resources.

• In a sign of the times, late July saw trading get under way in New York in the world’s first lithium exchange-traded fund (ETF), using the ticker LIT on the NYSE-Arca.

The fund has been assembled by New York-based Global X Funds, and holds lithium-related equities from mining to refining to lithium battery production, with roughly a 50-50 split between mining and refining companies, and battery manufacturers.

The top-five assets in the fund are Sociedad Quimica y Minera de Chile, FMC Corp., U.S. treasury bills, Rockwood Holdings and Sanyo Electronics. Other mining juniors in the ETF are Galaxy Resources, Avalon Rare Metals, Orocobre, Canada Lithium and Lithium One.

• While gold provided lots of excitement in June and early July in response to the various European debt crises, the yellow metal waned as July came to a close, as many investors wound up long positions and moved funds out of safe haven investments and back into riskier investments. In particular, gold and silver prices came under pressure from substantial liquidation of gold-silver ETFs. Spot gold prices plunged mid-week to three-months lows below US$1,560 per oz. before rebounding somewhat.

Still, the World Gold Council (WGC) reported in its latest Gold Investment Digest that gold investment demand had been strong through the second quarter of 2010 in response to growing awareness of fiat-currency weaknesses. The WGC reported that investors bought 273.8 net tonnes (8.8 million oz.) of gold via ETFs in the second quarter of 2010, and gold in the ETFs that the WGC monitors reached a record 2,041.8 tonnes (65.6 million oz.) worth US$81.6 billion.

• Instead, it’s been copper’s turn to shine over the past two weeks, as spot prices turned in one of their strongest performances this year, jumping back over the US$7,000-per-tonne mark — the first time since mid-May. Three-month copper prices also rose sharply to near US$7,300 per tonne.

It’s tricky to pin down just what happened with copper, since there were no supply or demand changes over the past couple of weeks, but copper prices have tended to rise on the broad rallies in stock markets lately, and reassuring talk of continued Chinese economic growth.

• One development of note in copper mining was Vale’s US$1.14-billion cash bid to acquire Brazilian copper producer Paranapanema, which the iron ore giant says is a step in a larger strategy to grow its copper business.

In Brazil, Paranapanema has a copper smelting and refining complex in Bahia, three production plants in Sao Paulo and Espirito Santo, and a phosphate fertilizer plant.

Vale’s existing copper assets include copper or copper byproduct mines in Brazil and Canada, plus development projects in Brazil, Chile and Zambia.

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