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Canada’s gold producers have seen better days, with the recent spate of executive changes at a number of the country’s top gold miners providing more evidence that the sector is hitting the reset button.
The most recent drama came unfolded at Canada’s No.3 gold producer, Kinross Gold (K-T), which has undergone a massive shakeup in its executive ranks -- with the latest appointments occurring this week.
The miner replaced embattled CEO Tye Burt last week with J. Paul Rollinson, the former executive vice president of corporate development. Days later the company promoted former chief operating officer Brant Hinze to the position of president, among other changes.
RED BACK ALBATROSS
Burt’s seven-year tenure at the helm will likely most be remembered for the 2010 acquisition of Red Back Mining for $7.1 billion, which many observers said was "fraught with uncertainty" and expensive, while Burt dismissed those concerns, saying the company had a “more informed view of value in this thing."
In February, it wrote down $2.49-billion relating to the Tasiast mine, amid growing delays and changing “project parameters.”
Kinross shares have fallen about 60 percent since the Red Back deal was announced. The company’s shares have also underperformed its peers -- which are also struggling with falling share prices as investors flock to less risky equities.
Speculation about a move to replace Burt was already swirling among investors. In May, Barry Allan, senior mining analyst at Mackie Research, predicted there was a 50-percent chance that Burt wouldn't be sitting in the corner office by next year.
"This goes back to a legacy of acquisitions that we've seen executed by the current management group, which sit there on the shelf and have not demonstrated bottom line performance," he told BNN at the time.
And a group of unidentified investors even launched a website dedicated to Burt’s dismissal.
But some analysts say a change at the top may not be enough to improve the company’s fortunes.
“It is our view that investors might well applaud the news of Mr. Burt's departure but frankly we are puzzled by the promotion. Mr. Rollinson, after all, was in charge of the company's Corporate Development department when Kinross acquired Redback Mining for $7.1-billion in September 2010,” Ron Stewart, head of research at Dundee Capital Markets, said in a note to clients.
“So while the Kinross Board might still believe that they will be vindicated as the value of the acquired assets is ultimately realized, we submit that they've done little to fulfill their fiduciary duty to shareholders.”
George Topping, Stifel Nicolaus analyst, says the company should have made a bolder statement when it replaced Burt.
“We do not know Mr. Rollinson, but would have preferred a high profile manager with a proven track record of operating and/or building mines and/or turning companies around,” he says in a note to clients. “We believe the board has missed an opportunity to make a statement which could have immediately boosted the share price materially.”
SECOND QUARTER PROFIT SINKS
Kinross posted a 53-percent fall in second-quarter profit on Wednesday as lower production and higher costs outweighed a slight increase in precious metal prices.
The gold miner also said it would move ahead with a prefeasibility study for a 30,000 tonne a day expandable mill at its Tasiast mine in Mauritania, a lower cost and lower risk option than an expansion to 60,000 tonnes a day.
Kinross said net earnings from continuing operations fell to $115.8 million, or 10 cents per share, in the quarter ended June 30. That compared with $244.3 million, or 22 cents per share, in the year-ago period.
Adjusted to remove one-time items, earnings were $156 million, or 14 cents a share, compared with $222.6 million, or 20 cents a share, in the year-earlier period.
Analysts, on average, had expected earnings of 17 cents a share, according to Thomson Reuters I/B/E/S.
Revenue rose nearly 5 percent to $1 billion.
The Kinross executive changes come after Barrick Gold suddenly ousted chief executive Aaron Regent in June, citing its weak share price.
With files from Reuters