Kinross Gold sells Russian assets at half the agreed price

The Kupol gold mine is in Russia’s Far Eastern region of Chukotka. (Image courtesy of Kinross Gold | Flickr.)

Kinross Gold (TSX: G) (NYSE: KGC) said on Wednesday it had sold its Kupol mine and Udinsk project in Russia to Highland Gold Mining for a total of $340 million in cash, half of the price announced in April.

The Canadian miner suspended operations in Russia in early March to both comply with Western sanctions against Moscow over its invasion of Ukraine and avoid reputational damage by staying in the country.

Kinross, which operated in the federation for about 25 years, said the price adjustment followed a review by the recently formed Russian sub-commission on the Control of Foreign Investments.

In addition to $340 million in cash, it will also receive a deferred payment of $40 million on the one-year anniversary of closing.

Country authorities in March said that any transaction between Russians and foreign counterparties required permission from the commission, to ensure decisions to exit were not driven by political pressure.

The assets sold to Highland Gold, one of the Russia’s largest bullion miners, were the Kupol underground mine and the surrounding exploration licenses in the country’s Far Eastern region of Chukotka, about 7,000 kilometres from Ukraine.

It also included Udinsk, the first project Kinross expected to develop on the Chulbatkan licence, acquired in 2020. Kinross had envisioned beginning production at the pit in 2025.

“We view this announcement as mildly positive as Kinross has finally exited Russia with $300 million in cash today (the market had been concerned that KGC would not receive any cash), with only a small deferred portion for next year,” Scotiabank said on Wednesday.

BMO’s analyst Jackie Przybylowski also qualified the sale as positive. “Although the total sale price is less than previously disclosed, this includes a higher amount of up-front cash,” she wrote in a note to investors.

“We now expect the company to be fully funded through to 2026 at our current growth forecasts and commodity estimates – previously, if we had only assumed an up-front $100M payment was made on the Russia assets, Kinross would have been required to raise capital in late 2024,” Przybylowski noted.

Leaning on Tasiast and Paracatu

“After the completed divestment of our Russian business, Kinross’ rebalanced portfolio maintains a substantial production outlook anchored by its two tier one assets – Tasiast and Paracatu – as well as a strong portfolio of mines in the Americas, a growing business in Chile, and the large, world-class Great Bear project in Canada,” CEO Paul Rollinson said in the statement.

Before Moscow’s invasion of Ukraine, Kinross had forecasted that about 13% of its global production would come from its operations in the country.

Analysts had described Kinross’s move as positive, but were wary about the relatively long payment schedule spread evenly over the 2022-2027 period. 

“We note that a heavily staggered payment plan mutes the immediate benefits to Kinross,” Jackie Przybylowski, a BMO analyst, wrote in a research note to clients on April 5.  

Highland Gold is one of the largest gold producers in Russia, with a portfolio of assets located in four mining regions — Chita, Kamchatka, Chukotka and Khabarovsk. The company is also commissioning the Ozernoe mine in Buryatia.

The transaction is the first sale of a Western company’s assets in Russia since the start of the war in Ukraine.