Kinross to acquire Underworld Resources (March 22, 2010)

The boards of Kinross Gold (K-T, KGC-N) and Underworld Resources (UW-V) have given their approval to a friendly takeover deal that will give Kinross the junior exploration company’s White Gold project in the Tintina gold belt, about 95 km south of Dawson City in Canada’s Yukon territory.

For each share of Underworld, Kinross will provide 0.141 of a Kinross share, plus a penny in cash. The transaction values the fully diluted share capital of Underworld at about $139.2 million.

The offer represents an implied offer price of roughly $2.62 per share, based on Kinross’s March 10 closing price of $18.54 per share on the Toronto Stock Exchange.

The offer also represents a premium of 36% over the closing price of Underworld’s shares on March 10, the last day of trading prior to the announcement of the offer, and a premium of about 50.2% based on the volume-weighted average prices of the shares of both Underworld and Kinross, for the 20 trading days ended March 10.

By midday on March 11, Underworld shares had surged 62¢ or 32.12% to $2.55 per share. (Kinross shares were down 1.5% or 28¢ apiece at $18.26 per share.)

Underworld’s board is recommending shareholders tender their shares to the offer. “The Kinross offer brings substantial technical and financial resources to the White Gold property, which will further rapidly advance the project,” Underworld’s chairman, Michael Williams, said in a statement.

Underworld owns 100% of the White Gold property. Last year it completed a $10-million, 25,800- metre program with 60 holes drilled at Golden Saddle and 19 holes at the Arc zone.

Assay highlights from the 2009 drill program at Golden Saddle included hole WD09-29, which cut 60.5 metres averaging 3.89 grams gold from 146.12 metres. Hole WD09-31 returned 104 metres averaging 3.39 grams gold from 100 metres and hole WD09-47 returned 31.1 metres averaging 9.20 grams gold from 91.9 metres.

Golden Saddle extends for 580 metres in strike length and 560 metres down-dip. It remains open to expansion along strike to the northeast and down-dip to the northwest. The most northeasterly and deepest holes completed so far include hole WD09-101, which intersected 4.86 grams gold over 23.4 metres and hole WD09-103, which returned 5.07 grams gold over 25.4 metres.

Golden Saddle’s indicated resources stand at 1 million oz. gold at a grade of 3.2 grams gold per tonne. In the inferred category, Golden Saddle contains 407,413 oz. gold at an average grade of 2.5 grams gold. The Arc zone has inferred resources of 170,470 oz. gold at an average grade of 1.2 grams gold.

In addition to the Golden Saddle and Arc zone, there are several other targets on the White property including: Teachers Showing, Minneapolis Creek, Ryan’s Showing, Donahue, South Donahue and McKinnon. All of the targets have been defined by gold-in-soil anomalies.

The properties are adjacent to the Yukon River and accessible by commercial river barges for five months in the summer and fall, and year round by helicopter from Dawson City. An airstrip at Thistle Creek is several kilometres south of the White Gold property.

Last year, Underworld built a 17- km access road linking the White Camp and the Golden Saddle deposit to the airstrip and barge landing. All weather access could be achieved by extending the road traversing south from Dawson City to the Stewart River by about 30 km and using a ferry across the Stewart River. Winter road access is also possible from the main highway to Whitehorse.

Thistle Creek, to the immediate south of the White Gold property, has recorded production since 1976 of more than 50,000 oz. gold. Underworld began exploring the property in 2007.

If Kinross acquires at least two-thirds of Underworld’s outstanding shares, it intends to take steps to acquire all outstanding shares not acquired pursuant to the offer.

If 100% of the shares are tendered, Kinross will issue roughly 6.8 million shares pursuant to the transaction (based on the fully diluted share capital of Underworld), representing about 1% of Kinross’s current outstanding shares.

Over the last year, Underworld has traded in a band of 41¢-$2.64 per share, while Kinross has traded between $16.52 and $25.22 per share.