The acquisitive nature of Kinross Gold Corporation (KGC) has taken it to the door step of Red Back Mining Incorporated (RBI) which appears to be a very good acquisition in terms of providing a pipeline of mining opportunities for Kinross. As usual with the predator in these situations the stock price of Kinross reflects a fair amount of trepidation in the mood of the investor, than both management teams would have liked to see.

As the chart above clearly depicts the stock price is heading south and note at a time when gold prices are heading north, so whats the problem. The problem is one of perception, in our humble opinion, in that this is an all paper deal whereby Kinross exchanges stock for assets. This type of deal is dilutive in that an enormous number of shares will need to be issued to meet the $7.00 billion dollar plus asking price for Red Back Mining. The market capitalization of Kinross currently stands at $10.68 billion so Kinross is about to almost double its size. If this deal goes through then there will be a period of digestion, or indigestion, as the two companies are amalgamated and the new management team search for economies of scale, etc.

As both management teams set about the task of selling this deal to the investment community we came across this clip on BNN who talked to Richard Clark, CEO, Red Back Mining, about the takeover. Its worth a watch just to see why Red Back wants this deal as oppose to maybe a deal with one of the other majors. However, it didn’t do a lot for us as holders of Kinross stock and we must try and assess how Kinross will perform over the next twelve months. We are expecting gold prices to improve dramatically but the question is:

‘Will Kinross reflect the rally in precious metals or are we in for twelve months or so of consolidation.’

If our cash could be deployed more effectively elsewhere then maybe we ought to reduce our stake in Kinross and put the cash to work in a stock or an options play that might offer better returns over the twelve months ahead of us.
Stay on your toes these are treacherous waters so take care.

As a special offer, if you sign up to a 12 month OptionTrader subscription before September 1st 2010, we will refund your $179 fee if gold prices do not make a new all time high in 2010! Visit www.skoptionstrading.com to sign up now.

Stay on your toes these are treacherous waters and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.

Silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

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Got a comment then please add it to this article, all opinions are welcome and appreciated.

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Bob Kirtley Archive

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