Analysts see Goldcorp, Kinross asset swap gains
(Figures in U.S. dollars)
OTTAWA, Sept 26 (Reuters) - A long-anticipated asset swap between Kinross Gold Corp (K.TO) and Goldcorp Inc (G.TO) will yield benefits for both miners as they consolidate their stakes in several mines, analysts said on Wednesday.
Under a deal announced late Tuesday, Goldcorp will buy a 49 percent stake in the Porcupine mines and 31.9 percent share of the Musselwhite mine from Kinross, to gain full ownership of the Ontario gold mines.
In turn, Goldcorp will give Kinross the 50 percent stake in Chile's La Coipa silver-gold mine that it doesn't already own and $200 million cash.
"This transaction should be beneficial for both parties in the long term as consolidating ownership usually improves efficiencies," Genuity Capital Markets analyst Chantal Gosselin said in a note.
Such streamlining translates into less management time per ounce of gold produced, UBS analyst Tony Lesiak said in a note.
The asset swap, widely expected after Goldcorp acquired Placer Dome assets last year, was largely neutral to the net asset value of both companies, several analysts said.
Goldcorp will gain production of between 110,000 ounces and 120,000 ounces of gold and "significant" resource potential under the deal, noted Lesiak, who notched his stock target up to $36.50 from $36.
But the transaction will also increase Goldcorp's exposure to a stronger Canadian dollar and higher operating cost structure, he wrote.
For Kinross, the deal provides cash to help fund the expansion of its Paracatu gold mine in Brazil, and development projects at Kupol in Russia and Buckhorn Mountain in the United States. The company expects to expand gold production by about 60 percent between 2007 and 2009 through those three developments.
The deal may also provide synergies, as La Coipa is close to the miner's Maricunga gold mine in Chile.
"On the downside, Kinross will produce approximately 110,000 to 120,000 ounces less gold per year and reserves and resources have declined 1.2 million ounces and 2.1 million ounces respectively with the deal," Lesiak wrote.
Kinross said the production decline will be balanced by lower cash operating costs, higher margins and increased free cash flow.
It will update its production guidance for 2008-2009 when the transaction closes, which it expects in 60 days.
Blackmont Capital analyst Richard Gray said the increased silver exposure at La Coipa makes up for the Ontario production loss for Kinross.
Amid broad declines for mining stocks, Goldcorp shares fell 2.3 percent to C$29.18 on the Toronto Stock Exchange and 2.4 percent to $29.01 in New York. Kinross dipped 1.6 percent to C$14.50 in Toronto and 2.2 percent to $14.42 in New York.
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