Kinross sells stake in Lundin Gold for $150M

Kinross Gold (TSX: K; NYSE: KGC) is selling 20.7 million shares, or its 9.2% stake, in Lundin Gold (TSX: LUG) for $150 million.

Shareholders Newcrest Mining (ASX: NCM) and the Lundin Family Trust are buying the Kinross shares, boosting their interest in Lundin Gold to 32% (from 27%) and 27% (from 23%), respectively.

Kinross said the move was part of its “portfolio management strategy” and broader efforts to “further strengthen its balance sheet.”

Last week, the gold major sold its collection of precious metal royalties to Maverix Metals (TSX: MMX).

Lundin Gold poured the first gold from the gravity circuit at Fruta del Norte on Nov. 16.

The underground mine is expected to produce nearly 4.7 million oz. gold over a mine life of 15 years. Once in commercial production, the mine should operate at 3,500 tonnes per day for an average of 310,000 oz. gold per year at estimated all-in sustaining costs (AISCs) of US$583 per ounce.

Fruta del Norte project location map. Credit: Lundin Gold.

Located in southeastern Ecuador, the deposit was discovered by Aurelian Resources in 2006. Kinross acquired Aurelian in July 2008 in an all-stock deal valued at $1.2 billion.

Lundin Gold acquired the project from Kinross in December 2014 in a cash and share deal valued at US$240 million. The transaction consisted of US$150 million in cash and 26.2 million common shares of Lundin Gold.

Kerry Smith, who covers Lundin Gold for Haywood Securities, expects Fruta del Norte to produce 290,000 oz. in 2020.

“The Fruta del Norte project ranks as one of the largest and highest-grade undeveloped gold projects in the world,” he writes in a research note. “Gold prices are moving higher, and timing is looking good for this new producer.”

Smith has a ‘buy’ rating on the company and a $9.25 per share target price.

At press time, Lundin Gold was trading at $7.76 per share with a 52-week range of $4.59 to $9.04. The company has 223 million common shares outstanding for a $1.73-billion market capitalization.