“We believe it’s going to be substantially bigger than it is today,” says Kinross Gold Corp. President and CEO Tye Burt about Red Back Mining's Tasiast mine.

Kinross Gold Corp. anticipates that future gold discoveries at the Tasiast mine in the African nation of Mauritania could be even greater than many analysts expect, providing motivation for its proposed friendly takeover of Red Back Mining Inc., says Kinross' chief executive.

Furthermore, Kinross intends to build a new mill to increase the ore-handling capacity at Tasiast by roughly six times.

The Kinross and Red Back boards of directors unanimously approved a $7.1 billion merger. As of the Aug. 2 announcement, the value of the offer was put at C$30.50 per Red Back common share. This was a premium of approximately 21% based on the preceding 20-day volume-weighted average price of Red Back common shares traded on the Toronto Stock Exchange (C$25.21) and the July 30 closing price for Kinross (C$16.87).

However, premium is a "relative term," said Tye Burt, president and chief executive officer of Kinross (TSX: K, NYSE: KGC), based in Toronto. He pointed out that a premium can also reflect value that the market doesn't fully recognize yet.

"We think this is one of those deals," he said in an interview with Kitco News.

Much of the focus is on Tasiast, which Burt described as a “world-class, once-in-a-lifetime” asset. “We believe it’s going to be substantially bigger than it is today,” he said.

The merger also adds Red Back’s Chirano mine in Ghana to Kinross’ portfolio of eight mines in the U.S., Chile, Brazil and Russia.

“The companies complement each other,” Burt said. “From Kinross, you get a big development pipeline, experienced mine developers, a big operating team and a lot of capital, which is going to be required.”

Meanwhile, there is growth potential for the properties of Vancouver-based Red Back (TSX: RBI), particularly Tasiast.

“Of course…Kinross, the bigger company, is paying a slight premium to market for Red Back,” Burt said. “That’s to be expected in any kind of control change.”

However, he said, “the market has been getting more and more excited” in the run-up to Sept. 15 Kinross and Red Back special shareholder meetings to consider the merger.

“Our market (share) price is starting to perform strongly against the peers,” Burt said. “We are expecting that to continue as the world comes to understand what we see in this asset.”

As of late Thursday morning, Kinross shares were trading at $17.12 on the New York Stock Exchange.

The merger would give Kinross a presence in West Africa, one of the world’s fastest-growing gold regions.

Currently, Kinross has around 45 million ounces of gold reserves with more in the category of inferred, measured and indicated. There are around 5 million ounces in reserves at Tasiast, but the consensus estimate of market analysts puts this around 15 million, Burt said.

“We think there is substantially more than that,” the CEO continued. “Add to that the 5 million ounces of reserves at Chirano in Ghana and you’re getting a company that is very, very large.”

Kinross’ optimism about Tasiast is based on the company’s geologic models and interpretation. The company has done “due diligence” for six months, including drilling some verification holes. Burt described a greenstone formation on a scale similar to those at some other major gold finds in the world.

“These are old, old, old rocks that have molded in a certain way and allowed the assembly of gold in the formations below the surface,” Burt said. While Burt said “we don’t know yet how big” any gold discoveries will become, “it has the potential to get substantially larger” than the 15 million analysts are citing so far.

Kinross announced Wednesday that Glass, Lewis & Co. has recommended that Kinross shareholders vote for the issuance of Kinross shares and warrants in connection with the acquisition. Glass, Lewis & Co. is a professional-services firm that provides proxy research, analysis and voting recommendations to institutional investors and money managers.

If shareholders approve the merger, expectations are for the transaction to close within a few days, Burt said. The companies announced an integration plan on Wednesday that includes the start of a more intensive exploration program at Tasiast. The company said it will provide an update on these efforts in its third-quarter results released in November, and then include a reserve and resource declaration in its annual report due out in February.

Meanwhile, Kinross also intends to expand the Tasiast operation. Expectations are that a new mill would be finished in late 2013.

Currently, the mill at Tasiast has a capacity to process 8,000 to 10,000 tons of ore per day. The company’s plan is to build a new mill with a capacity for up to 60,000 tons. “So it is quite a radical upshift in production capacity,” Burt said.

Kinross plans to undertake community-relations efforts in the region, including job-training programs. Burt described the government of Mauritania as “extremely welcoming to us.”

By Allen Sykora of Kitco News; asykora@kitco.com

Editor’s Note: Meet the Kitco News Team at the upcoming Kitco Metals eConference September 12-13, 2010. A not-to-be missed event featuring Ron Paul, Marc Faber and other industry heavyweights. The eConference is free with Pre- Registration www.kitcoeconf.com.