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Red Back Mining Set to Close Up 6% after Kinross Bid, Strong Q2 Results

Credit Suisse kept an Outperform rating and US$35 Target Price on Red Back Mining (RBI.TO) after a first reading of the Kinross Gold Corp. bid and the release of a strong Q2 result.

RBI is up 1.59 at 27.61, having earlier touched a day high 28.58, which left it shy of a year high 28.94.

Highlights for the Second Quarter were:

-- Total gold production of 106,362 oz (year-to-date: 202,522 oz).

-- Average realized gold price of $1,215 per oz (year-to-date: $1,167 per

oz).

-- Profit from mining operations of $54.3 million (year-to-date: $97.9

million).

-- Cash flow from operations of $68.0 million (year to date: $120.9

million).

-- Cash flow from operations per share of $0.27 (year to date: $0.50).

-- Net income of $21.9 million (year-to-date: $55.1 million).

-- Earnings per share adjusted for non-cash stock based compensation of

$0.18 (year to date: $0.33).

-- Cash operating costs of $481 per oz (year-to-date: $476 per oz).

-- CAD $600 million private placement from Kinross Gold Corporation.

-- Commencement of decline development and initial underground reserve at

Paboase of 920,000 oz.

"We have analyzed the deal on a preliminary basis, examining NAV, EPS, CFPS, Reserves/Resources and production and costs. We ascribe a value of $20.54 to the potential Newco at this stage. We believe the transaction would be positive for RBI shareholders. By our estimates based on current prices of RBI and K, it offers 17% premium to current RBI shares, but including the discount in K shares, the bid offers a 43% premium. More importantly, the transaction will put RBI in play," Credit Suisse said in a morning note.

On Valuation: "We apply a 1.4X Target P/NAV multiple to our DCF of $22.65/sh and add net cash of $2.97/sh at par to arrive at our Target price of $35.00/sh."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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