Kinross to bail out Russian unit
The Globe and Mail -- Amy Carmichael
TORONTO -- Kinross Gold Corp. announced yesterday that it will spend $45.4-million (U.S.) to bail its Russian subsidiary out of debt and put an end to lawsuits launched by angry shareholders.
The Toronto-based gold producer said it will buy out the Russian shareholders and take 100-per-cent ownership of Omolon Gold Mining Co. The move will allow the shareholders to repay their debt to provincial and federal Russian governments. The three groups had entered into a partnership, putting $43-million into Omolon.
Kinross invested the same amount, buying a 50-per-cent stake.
Gordon McCreary, Kinross's vice-president of corporate development, said that buying out the shareholders was the right thing to do, especially now.
"It's a very robust economic project," he said. "The mine is at the end of its processing life. It's in what is generally called a harvest period and is generating a fair amount of cash flow."
The money to buy out the Russian shareholders is coming out of Omolon's cash on hand, Mr. McCreary said, not Kinross's accounts, making it even more financially viable.
Kinross, which struck a merger deal this spring to grow its international operations, may seek to reduce its ownership down the line, he said. The company is looking at further developments in the Russian province and more partnerships with the Magadan provincial government.
In a release, Kinross said it expects all lawsuits launched by the Russian shareholders will end once the deal, brokered by the Ministry of Finance of the Russian Federation, is completed.
This transaction is expected to close by mid-November.
The open-pit mining phase of the high-grade Kubaka deposit at Omolon's Birkachan mine concluded this month and the mill will continue to process stockpiled and other ore.
Resumption of exploration at Birkachan and other nearby targets is expected to restart in November.
Underlying the dispute are unpaid loans made by the Magadan administration to Omolon's Russian shareholders at the time Omolon was capitalized. The shareholders were unable to repay the loans and have been working to shift the burden of repayment to Omolon, Kinross said.
Two shareholders launched lawsuits against Omolon alleging that the shares they received were flawed as a result of registration deficiencies, therefore entitling shareholders to their money back with interest.
Kinross alleges the lawsuits have been encouraged by the Magadan Administration, the shareholders' major creditor.
Just as draft language of an agreement was being settled in September, one of the Russian shareholders obtained an order to freeze Omolon's bank accounts and gold inventory pending final resolution of its lawsuit.
Earlier this year, Kinross announced it was merging with TVX Gold Inc. of Toronto and Echo Bay Mines Ltd. of Englewood, Colo., in a deal worth more than $1.9-billion. The transaction will create the world's seventh-largest gold producer, with annual production of two million ounces a year.
In addition, less than 5 per cent of the proposed new company's gold reserves are committed at future set prices, giving the company the chance to profit from rising gold prices. Additionally, nearly two-thirds of annual production would be in the United States and Canada.
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