Kinross Gold to acquire Great Bear Resources for $1.8B

Gold miner Kinross Gold (TSX: K; NYSE: KGC) is acquiring junior explorer Great Bear Resources (TSXV: GBR; US-OTC: GTBAF) for $1.8 billion (US$1.4 billion) in order to get its hands on the junior’s flagship Dixie gold project in northwestern Ontario one of the most important gold discoveries in Canada’s history.

“We have been looking at this asset since 2018,” Paul Rollinson, Kinross Gold’s CEO told analysts and investors on a conference call. “The exploration results to date from over 700 holes and 340 kilometres of drilling, suggests a prolific gold system that remains unconstrained and open to extension with over 80% of the property still unexplored.”

“Over the past several years we have reviewed hundreds of opportunities including every opportunity in Canada and we believe this is an excellent transaction for our shareholders,” he noted, adding that “now is the time to bring it into our portfolio.”

Kinross is acquiring the junior explorer for $29 a share in cash and stock, a 40% premium to Great Bear’s 20-day volume weighted average price on the TSX Venture Exchange. Great Bear shareholders will be able to choose to receive payment in cash or 3.856 Kinross shares for each Great Bear share they own.

“Great Bear shareholders will now be in a unique position to benefit from the potential of the top-tier Dixie project under one company and will maintain strong exposure to the project through their Kinross shares,” Chris Taylor, Great Bear Resources’ president and CEO, said on the conference call.

Situated in Ontario’s renowned Red Lake mining district, the Dixie project is accessible year-round by highway and close to significant infrastructure, including paved roads, electricity and a natural gas pipeline. The project comprises 91 sq. km of contiguous claims with 80% of the property unexplored.

So far, Great Bear has completed more than 340,000 metres of drilling in 794 drill holes and has identified five high-grade gold discoveries.

The LP Fault zone, comprised of continuous wide, moderate grade mineralization with high-grade gold lenses, is the most significant discovery at Dixie to date. Drilling in the zone has identified gold mineralization along 10.8 km of strike length and down to a depth of 786 metres. The deposit remains open along strike and at depth.

 The project is expected to witness a multitrack development plan with a scoping study likely to take place in a year’s time and construction in three years, with a “good first production” aimed in 2029, according to Paul Tomory, Kinross’ chief technical officer.

In response to queries from analysts on why Kinross is so confident about the Dixie project – given that not all projects in the Red Lake mining district have materialized as expected — Tomory pointed towards the “highly consistent” mineralization and grades in the drill data.

“There is also an almost remarkable lack of faulting and diking in the deposit which gives us a lot of confidence in the potential continuity of mineralization,” he added.

According to Taylor, Dixie’s closest geological analog is the Hemlo gold mine, which produced over 20 million ounces of gold in more than 30 years of operation.

If the transaction is completed, Kinross says it plans to rapidly advance exploration activities at the LP Fault Zone and look for Red Lake-style satellite deposits in the region.

From 2017 to 2019, Great Bear’s primary focus was on the Dixie Limb and Hinge zones. This exploration work resulted in discovering the Hinge Zone and several high-grade intercepts being drilled within both targets.

In 2019, Great Bear made several new high-grade gold discoveries, the Bear-Rimini, Yuma, Auro, Yauro, Viggo and Gap zones. These discovery areas have since been confirmed through drilling to entail a large, continuous zone of gold mineralization, now known as the LP Fault zone.

In an interview with the Northern Miner in November, Taylor said that over 80% of the company’s drill holes into the LP Fault, Dixie Limb and Hinge zones were noted to contain visible gold. The Auro Zone, according to him, looks to be the ‘honey pot,’ presenting higher-grade upside.

Analysts estimate Auro 2 alone could hold between 700,000 to 800,000 ounces of gold grading on average 20 grams per tonne. “There is nothing in Canada with this ‘horsepower’ based on size,” said Taylor.

The size of the LP Fault is about double the size of Barrick Gold’s (TSX: ABX; NYSE: GOLD) Hemlo mine. According to Taylor, the mineralization is continuous, enough to fit either Central Park in New York or the Canadian Malartic gold mine — Canada’s largest open-pit operation, to fit comfortably inside.

On October 25, Great Bear reported preliminary metallurgical tests from the LP Fault, which, confirmed that non-refractory, free gold dominates the domains tested. A total of ten one-kilogram representative samples were analyzed at Blue Coast Research, with gold recoveriesof between 95.2% and 99.2%. Phase 1 drilling was completed in July. The results found mineralization in the LP Fault gold zone at both ends of the drill grid. In the northwest, the company reported highlight intercepts such as 28.18 grams gold per tonne over 4.8 metres within a broader 3.83 grams per tonne intercept over 43.1 metres.

In the southeast, drilling returned 64.3 grams gold per tonne over 0.55 metre, within 5.9 grams gold per tonne over 8.25 metres.

At presstime in Toronto Great Bear Resources was trading at a new 52-week high of $28.47 per share, up 24.2% on the day.

Farooq Hamed, a mining analyst who covers Kinross Gold for Raymond James, outlined the positives and negatives of the deal, and lowered his target price on the gold major from $9.00 to $8.50 per share.

“On the positive side, the Dixie project appears to have the potential to host a large, high-grade resource (based on Great Bear drill results, Kinross expects to publish a maiden resource with YE 2022) in a favorable jurisdiction which will allow Kinross to diversify its political risk profile while also taking advantage of ~$1 billion in Canadian tax pools,” he commented in a research note to clients. “Offsetting the positives, the acquisition of the pre-resource asset represents ~20% of Kinross’ market capitalization while the ultimate resource definition and project execution risk and expense transfers to Kinross. Further, with expected first production at the end of the decade, we view the acquisition as tying up significant capital and causing dilution well before any benefits are received.”