Goldcorp-Canplats Deal Highlights Value of Junior Gold Miners

By Andrew Willis

Junior gold miners have seen their stocks take flight on the back of soaring bullion prices, but the latest takeover by Goldcorp (GG) shows these companies still command premiums when they are taken over.

Goldcorp is making an all-stock offer valued at $238 million for Canplats Resources (CPQRF.PK), which has a property in Mexico that’s just 50 kilometres down the road from a Goldcorp mine.

As part of the deal, Goldcorp will spin off a new exploration company to Canplats' existing shareholders that will hold interests in two Mexican properties, and $10 million of cash.

After crunching the numbers on this acquisition, National Bank Financial analyst Tanya Jakusconek said Goldcorp “is paying about $60/oz on a per ounce in the ground basis (on a gold equivalent basis the transaction is valued at $48/oz). Currently, the junior gold resource companies are trading at approximately $44/oz.”

In other words, the price these reserves command in the open market is considerably below what they are to a strategic buyer. This is useful information for investors in junior plays that might be takeover targets. However, it’s all important to keep in mind that at this stage in the resource cycle, takeover activity is not a dominant theme.

Independent investment dealers snagged the advisory assignments on this transaction, with Canplats looking to Genuity Capital Markets. A special committee of Canplat directors was advised by Salman partners.

GMP Securities worked with Goldcorp. On the legal front, Vancouver-based Canplats used Lawson Lundell in Canada and Skadden, Arps, Slate, Meagher & Flom LLP in the United States. The special committee's lawyers came from Blake, Cassels & Graydon. Goldcorp's legal advisors are Cassels Brock & Blackwell in Canada and Neal, Gerber & Eisenberg in the United States.

Canplats promised a $7.2 million break fee to Goldcorp if the company accepts a superior offer, and has granted a right to match any new offers.

Comments

[kelvin8:]

Good concept for an article, bad example though.
At $60 an ounce for this gold, GG is not paying a premium. This is an exceptional property near existing infrastructure, will be an open pit operation, and most importantly they show an 85% recovery rate with a 3/4 inch crush size. That means minimal processing and ultra low cash costs per ounce for GG.
There are lots of examples of Majors paying a premium to expand their resources in this market. This however is not one of them.

Nov 16 04:17 PM

[Mad Hedge F...:]

xci Paul Tudor Jones nicely summed up the fundamental argument in favor of gold. The yellow metal is accumulated, and not consumed, and is the ultimate store of value. Gold does particularly well during times of excessive monetization, inflation, and instability of the banking system, as we are seeing now. Central banks, which have been consistent sellers for the last 20 years, are about to flip to net buyers. If non G7 central banks, like China, want to increase their gold holdings from the current 20% of reserves to the 35% weighting now owned by the G7, it will require 1.3 billion ounces of new purchases, or 20% of the total world supply. Certainly they are getting fed up with their ever depreciating dollar holdings. Witness last week’s Bank of India purchase of 200 metric tonnes. ETF’s now own $50 billion worth of the barbaric relic, about 3% of the world total, making them the sixth largest holder in the world, and retail demand for these gold proxies is expected to explode in coming years. Private investors, mutual funds, and pension funds are all underweight gold. This is all happening in the face of declining production from traditional gold suppliers like South Africa. It all adds up to a whole lot of new gold buyers and a shrinking body of sellers. Paul didn’t give any specific price targets other than “up.” Long time readers of this letter know I have been banging the table about gold all year. Time to salt away more American eagles for those college funds and grandkids.

Nov 16 04:49 PM

[A.D.G.(Tony...:]

too logical to disagree

Nov 17 09:16 AM

[swaps:]

I took all my profits on Goldcorp months ago because it seemed their mines were aging. This purchase makes sense. But for now I will remain exposed to gold through Kinross and New Gold.

GG merits continued watching.

Nov 17 10:08 AM

[Marco G.:]

I don't know how "the National Bank Financial analyst Tanya Jakusconek said Goldcorp “is paying about $60/oz on a per ounce in the ground basis (on a gold equivalent basis the transaction is valued at $48/oz)."

In my research for article on Big Gold Acquisitions seekingalpha.com/artic...
I simplistically calculated the $238 Million paid divided by the 1.7 Million Gold reserve oz. giving a $133 value per Gold oz. This is in line with recent valuations paid of $125 to $150 per reserve oz. The analyst probably used inferred resources given also in her calulations, which any mining analyst would not use.

However the main point is that once these oz. are transferred to Goldcorp, they are valued by the market at $695 per reserve oz!
" Then with the magic of accretive values, Goldcorp is valued at a market capitalization of $32 Billion based upon the 46 million ounces of reserves that it owns, which works out to $695 USD per Gold reserve ounce. Goldcorp just purchased Gold reserve ounces at $133 USD each and by just owning them, they become worth over five times more!"

Nov 22 10:23 AM