Eldorado Gold CEO Paul Wright and Goldcorp chief Chuck Jeannes
TORONTO – The CEOs of Canada's Goldcorp and Eldorado Gold were playing their cards close for different reasons on Friday, after both companies disclosed they had made takeover offers for TSX- and ASX-listed junior Andean Resources.
Both Goldcorp and Eldorado want to get their hands on Andean's flagship Cerro Negro gold/silver project, a shallow, likely low-cost asset in the Santa Cruz province of Argentina that is expected to grow significantly.
The difference though is that Goldcorp has locked in a friendly deal with the smaller company, after securing the backing of Andean's board of directors for its C$3,6-billion cash and share offer, and also signed up Andean's biggest shareholder in support of the deal.
Just hours before Goldcorp's announcement, Eldorado Gold said that it had proposed a C$3,4-billion all-stock offer, but decided to go straight to shareholders after receiving no response from Andean.
Eldorado and Goldcorp both submitted proposals around the same time, but the board decided Goldcorp's was the better offer, CEO Wayne Hubert said on Friday afternoon.
He confirmed in an interview that Andean received “at least one” other proposal in the last couple of weeks, but declined to give any more details.
In a statement late on Thursday, Eldorado said it made a proposal on August 18, but was rebuffed verbally by Andean. The company then submitted a formal proposal to the board on August 30.
Goldcorp was aware there were other offers, but did not know any more, CEO Chuck Jeannes said in an interview on Friday.
Goldcorp won a bidding war early this year to buy Canplats Resources and its Mexican project – also after inking a friendly agreement with the target – and Jeannes indicated he will not shy away from another competitive situation.
“We think we have made a very good deal with Andean that provides excellent value to their shareholders.
“But we never get involved in something like this without an expectation that we are going to win.”
Goldcorp is also tied up in a lawsuit with Barrick Gold, after it scooped up 70% of the El Morro project, in Chile, from under the bigger company's nose.
Maison Placements gold analyst John Ing said he does not expect Eldorado or another third party to come back with a higher offer.
Between the fact that Goldcop has signed a friendly deal, Eldorado's likely reluctance to overpay for an acquisition, and the premium already being offered, a bidding war is unlikely, Ing said in an interview.
"Even if you double the ounces of resources there, it's still a rich price," he said.
Goldcorp is coughing up more than $1 200/oz in its cash and share offer, based on the current indicated gold resource of 2,54-million ounces.
There was a lot of talk on Friday about the upside potential at Cerro Negro, but Jeannes was reluctant to say how big he thinks the asset could turn out to be.
He did comment, though, that Goldcorp is not buying Andean for the three-million ounces it has already defined. “We believe the resource will continue to grow substantially,” he said.
Andean's Hubert said he sees a doubling of the resource as “very doable” and suggested it could potentially even triple in size.
Eldorado CEO Paul Wright, meanwhile, refused to comment at all on what his next move will be. He said the company believes its offer is competitive, and pointed out that Andean shareholders would get a much bigger piece of the combined company if they opted for Eldorado rather than Goldcorp.
The company is reserving its options going forward, and will use “whatever tools available to us as we see fit”, he said on a conference call.
“You will see it when we do it,” Wright said, when pressed by analysts for more.
He also declined to say when Eldorado could make an announcement: “Some time in the future is a safe bet”.
Andean completed a feasibility study on Cerro Negro in July this year, outlining an extremely respectable operation with annual gold production of 200 000 oz/y, at $168/oz after silver credits, with a construction price tag of about $275-million.
But the company only really got the wires buzzing a few weeks later, when it announced bumper results from a new high-grade discovery at the project, called Mariana Central, which Jeannes described as a “game changer”.
Goldcorp, the second-biggest miner by market value, had been watching Andean for a couple of years, but the project just didn't have the scale to meet its portfolio requirements, he said.
But after taking in the impressive results from Mariana Central, the company moved quickly to put together a proposal.
“Goldcorp has been built on tip-of-the-iceberg acquisitions ...and we believe we have identified another,” Jeannes said.
Andean's plan was to be in production at Cerro Negro by 2012, and Goldcorp expects to follow the same timetable, and then look at expanding the operation after that, he said.
Goldcorp has mines in Canada, Argentina, the US, Mexico, Honduras and Guatemala, and expects output to rise more than 50% over the next five years. It also has two new projects scheduled to start up in 2015.
Eldorado, which bought Australia's Sino Gold last year, produces gold from three mines in China and one in Turkey, and has development projects in China, Turkey, Greece and Brazil.
The news sent Andean shares up 44,7%, to C$6,96 apiece by around midday in Toronto. The stock traded as high as C$7,08 earlier in the day.
Goldcorp shares were down 3,33%, at C$44,64 apiece. Eldorado fell 4%, to C$19,70 a share.
Source:miningweekly