Kinross to buy Crown

Determined to boost reserves and production while decreasing costs, Kinross Gold (K-T) has agreed to acquire Denver-based Crown Resources (CRCE-O).

Under the proposed deal, Crown shareholders would receive 0.2911 of a Kinross share for each Crown share. Assuming all of Crown’s warrants, options and convertible debentures are converted, Canada’s third-largest gold producer would need to issue 13.1 million shares to complete the transaction. Based on the closing price of Kinross’s shares in Toronto on Oct. 9, the bid values Crown at $133.8 million.

The plan also calls for Crown to distribute to shareholders its 41% stake in South American explorer Solitario Resources (SLR-T). On the flip side, Solitario, via the conversion of US$1.4 million worth of secured and subordinated convertible notes and associated warrants, would gain a 13.7% equity interest in Crown on a fully diluted basis.

The agreement has yet to be approved by regulators, and at least two-thirds of Crown’s shareholders must give their consent.

Crown’s key asset is Buckhorn Mountain, a high-grade skarn gold deposit in north-central Washington state. At the end of 2002, proven and probable reserves at the project totalled 1.94 million tonnes grading 13.44 grams gold per tonne; another 1.07 tonnes of mineralized material grades 13.82 grams gold.

A 41-hole program of infill drilling at Buckhorn Mountain has confirmed the grade and continuity of the Southwest zone. Highlights from the last 14 holes include 6.9 metres grading 24.3 grams gold, 3.5 metres of 29.5 grams, and 3.7 metres of 32.6 grams gold. Two of the holes ended in mineralization, suggesting expansion potential at depth.

Kinross is reviewing the drilling data and plans to update the reserve and mineralized material estimates to conform to the standards of National Instrument 43-101.

Earlier this summer, Crown submitted an initial plan for a 1,500-ton-per-day underground mine and mill at Buckhorn. The plan minimizes environmental impact compared with earlier plans for an open-pit, heap-leach operation. The company will file a supplemental environmental impact statement before year-end. Approval of both submissions is required before construction can begin.

By the end of June, Crown had spent US$514,000 of US$1.6 million budgeted for permitting costs in 2003. The company figures development of the project will ring in at US$91 million, including US$21 million in contingencies. The project would employ about 150 people for 10 years.

Says Kinross CEO Robert Buchan: “We have been encouraged by the recent legislative changes in the state of Washington, which have improved the business climate and the opportunity for development of the Buckhorn Mountain project.”

Buckhorn is 67 km from Kinross’s Kettle River gold mill, which it inherited from Echo Bay Gold Mines under a 3-way merger involving TVX Gold.

Exploration at Kettle River is focused on the Emanuel Creek deposit, near the past-producing K2 and Kettle mines. During 2002, 41 diamond drill holes outlined a zone of gold mineralization between 10 and 20 metres wide. The gold-bearing vein system remains open along strike and at depth.

A crosscut from the exploration drift was developed through the Emanuel Creek deposit to provide access. Roughly 300 metres north and along trend of the deposit, drilling cut a new zone of gold mineralization over a 200-metre strike length. Five holes on the new zone, dubbed North Emanuel Creek, returned 60.4 metres grading 31 grams gold, 71.3 metres of 2.4 grams, 7.4 metres of 14.7 grams, 16.4 metres of 10.7 grams, and 6.7 metres of 9.1 grams. Further work will define the extent and geometry of the deposit.