Agnico-Eagle To Acquire Cumberland Resources

 |  Includes: AEM, CLG
by: Tim Iacono

One of the problems with investing in junior gold mining companies is that, even if you've never met anybody at the company, you develop a sort of relationship with them by reading press releases and other commentary.

Then one day somebody buys them and the relationship comes to an end. Such was the case yesterday when news came that Canadian gold miner Cumberland Resources (AMEX: CLG) is being acquired by Agnico-Eagle Mines Limited (NYSE: AEM).

From the press release:

CUMBERLAND RESOURCES LTD. (TSX: CLG; AMEX: CLG) (“the Company”) is pleased to announce that it has signed an agreement with Agnico-Eagle Mines Limited (NYSE: AEM; TSX: AEM) (“Agnico-Eagle”) under which Agnico-Eagle has agreed to make an all share exchange offer for all of the outstanding and fully diluted common shares of Cumberland.

Cumberland has a 100% interest in the Meadowbank gold project located 70 kilometres north of the hamlet of Baker Lake, Nunavut. Meadowbank is host to Canada’s largest pure gold open pit gold reserves of approximately 2.9 million ounces 1 contained within a gold mineral resource of approximately 4.0 million ounces 2.

Terms and Expectations

• Exchange Ratio of 0.185 of an Agnico-Eagle share for each Cumberland share
• Represents a 28.8% premium to Cumberland’s closing share price on February 13, 2007, or a 23.7% premium to the TSX volume weighted average prices based on the trailing 20 trading days from that date
• Values Cumberland at approximately Cdn$710 million based on approximately 80 million fully diluted common shares outstanding, at February 13, 2007
• Cumberland shareholders (excluding Agnico-Eagle) will own an approximate 10% proforma interest in Agnico-Eagle
• Transaction approved by the Boards of Agnico-Eagle and Cumberland
• Directors and Officers of Cumberland, representing approximately 10.5% of the fully diluted common shares outstanding, have agreed to tender their shares in an agreement with Agnico-Eagle

If the acquisition is completed, Agnico-Eagle expects*:

• its proforma gold reserves to increase by 28% to 13.3 million ounces, 82% of which are located in Canada;
• its projected gold production to rise a further 39% in 2010 to more than 1.3 million ounces
• its proforma cash position to increase to over US$550 million, with no additional funding expected to be required to build its pipeline of five development projects

*Refer to the disclaimer in the news release issued by Agnico-Eagle on February 14, 2007.

“I believe this transaction is a good example of a win-win situation for both Cumberland’s shareholders and those of Agnico-Eagle. The Meadowbank project will be in the good hands of a proven mine builder in Agnico-Eagle, and they have the financial capacity and expertise to continue to expand the reserves and resources of the project and perhaps improve upon the projected annual gold output,” said Kerry Curtis, President and Chief Executive Officer of Cumberland. “I am also confident that Agnico-Eagle will continue to adhere to the highest standards of corporate responsibility, and will work very closely with the community of Baker Lake, the regional Inuit organizations and the Government of Nunavut,” added Mr. Curtis.

It's been a good three months for shareholders - when news broke yesterday it was a quick move up 25 percent to the Agnico-Eagle offer price. Investors in small mining companies such as Cumberland learn to scan their online portfolio page for double-digit percent changes - the direction is not always up.

It's been an even better eighteen months. About a year ago they began to make great progress in both proving their gold resources and securing all the necessary permits for mine construction. Shortly after they received the final permit to build an all-weather 110-kilometer access road, the deal was announced.

Following the purchase of AfriOre by Lonmin Plc and the unsuccessful bid for NovaGold (AMEX: NG) by Barrick Gold (NYSE: ABX), this marks the third acquisition attempt and what looks to be the second successful purchase in less than a year for companies held in the model portfolio at the companion investment website Iacono Research.

Each one results in mixed feelings - you're glad to see the share price soar, but you're sorry to see them go.

Full Disclosure: Long CLG and NG, no position in AEM or ABX at time of writing.