Goldcorp offer tops Eldorado in gold mine take-over
Friday, September 3, 2010 at 11:50AM
Goldcorp makes $3.4 billion bid for Andean Resources
SYDNEY (Reuters) - Goldcorp (G.TO) agreed to buy Argentina-focused gold miner Andean Resources AND.AX AND.TO for C$3.6 billion ($3.4 billion), trumping a competing offer from fellow Canadian miner Eldorado Gold Corp (ELD.TO).
The takeover is the latest in a series of gold-mining deals this year, including Australia's Newcrest Mining's (NCM.AX) $8.4 billion purchase of rival Lihir Gold, as near-record prices for the metal boost the hunt for reserves and pump cash into the sector.
Gold consumption rose by more than a third in the second quarter of 2010 and is set to stay strong with India and China providing the main thrust. Investment demand is also seen firm amid uncertainty about the global economic outlook, which boosts the appeal of gold as a safe haven.
"Andean's plan to sell does not come as a surprise. It was set up to be taken over at some stage. It was a question of how and what price," said Tim Barker, portfolio manager at BT Financial Group. "The pricing and the premium looks pretty reasonable."
Goldcorp said its cash and share offer -- at C$6.50 per share a 35 percent premium to Andean's last traded price in Toronto -- has been approved unanimously by the boards of directors of both companies.
Andean's shares opened up nearly 41 percent at C$6.76 on the Toronto Stock Exchange, while Goldcorp shares were down 4.7 percent at C$44 in early trade.
Goldcorp's offer topped an all-share bid from Eldorado worth C$6.36 a share. Earlier on Friday, Eldorado said it was taking its offer to shareholders after the companies failed to reach a deal following protracted negotiations.
"This is a reasonably strong bid by Goldcorp, though with Eldorado still in the picture, there does remain the possibility that a bidding war may emerge," said Paradigm Capital analyst Don MacLean, in a note to clients.
CERRO NEGRO
Goldcorp said Andean's principal asset is its 100-percent owned Cerro Negro Gold project in the southern province of Santa Cruz in Argentina, which would add to its gold production pipeline.
With an estimated reserve roughly equal to the annual output of the world's second-biggest gold mine -- Navoi Mining & Metals 2.4 million ounce per year Muruntau mine in Uzbekistan -- Cerro Negro's owner are getting top dollar for the operation.
However, analysts said Goldcorp's willingness to pay a high price suggests it expects to find more gold if it expands exploration.
While equity analysts put Andean's fair price at C$6.50 to C$6.60 a share, in line with the Goldcorp offer, they added Kinross (K.TO), Yamana Gold (YRI.TO) and AngloGold Ashanti (ANGJ.J) are well positioned to consider a bid.
However, Kinross made a $7.1 billion all stock offer for Red Back Mining (RBI.TO) on August 2.
Neither Goldcorp nor Eldorado disclosed whether a deal would add or cut earnings. Analysts expect Cerro Negro to ramp up production only in 2013.
Andean is advised by BMO Capital Markets, Goldcorp by CIBC World Markets and Eldorado by GMP Securities.
The mining sector is leading the global M&A activity, which recorded $267 billion worth of deals in August, making it the biggest month since June 2009, Thomson Reuters data showed.
The materials sector has seen a 30 percent rise in deals with global miner BHP Billiton (BHP.AX) (BLT.L) leading the charge with a $39 billion offer for Canada's Potash Corp
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