Yamana-Northern Orion-Meridian Merger Doesn't Look Likely to UBS

Yamana Gold Inc. (AUY) won shareholder approval Wednesday for its proposed acquisition of Northern Orion Resources Inc. (NTO). But the proposed three-way merger involving Meridian Gold Inc. (MDG) is looking less likely to succeed, UBS analyst Tony Lesiak wrote in a note to clients.

He points out that deal spreads suggest Yamana will not be able to tender the 66.7% of Meridian shares necessary to complete the merger. "Arb interest has been below expectations and [Meridian] continues to vehemently oppose the bid," he wrote. However, he does not expect any competing bidders to emerge.

Mr. Lesiak also speculated that Yamana's own determination to complete the deal could be waning because of the "significant" decline in its share price, and the difficulty in combining Northern Orion's Agua Rica project with the nearby Alumbrera project, which is operated by Xstrata PLC (Northern Orion has a 12.5% minority stake). Yamana is hoping to reach a joint venture agreement with Xstrata.

Yamana's "full, fair and final offer" is due to expire Sept. 7. Yamana chief executive Peter Marrone has said he has no plans to raise the offer or extend it.

AUY vs. NTO vs. MDG 1-yr chart:

Comments

[KBowen7736:]

In threse days of tight commercial paper Mr. Marone needs to come to the realization that he should be satisfied to operate his bought kingdom and begin to make an operating profit for his shareholders. Even Cramer will only stand for so much dilution!

2007 Aug 24 10:32 AM

[Don-100:]

As a shareholder of AUY, I agree with the above comment. And that is MY money that Marone is using for this "bought kingdom!" The under-performance of the HUI needs to come to an end. Repeated negative earnings surprises are certainly not helping. Hmm... let me see: a 53X TTM P/E vs 31X for the industry, and a 30X TTM P/CF vs 17X for the industry. Seems like expectations are pretty high. Now would be a good time to start delivering.

Don

2007 Aug 24 12:37 PM

[West Coast ...:]

Fortunately Yamana is getting it that we shareholders don't want to have our shareholder equity squandered away! What a hogwash to acquire another gold mining company half the size (and less than half the size in about two years, when Yamana's excellent development projects will produce over 3/4 of a million ounces a year) by giving away about half of the shareholder value to Meridian's shareholders!

By the way - Yamana management has sold out before that, what a "surprise". I'll be happy to invest more into Yamana, once the bought kingdom dreams have hit the wall and bloody-nose get back at what they do otherwise best: bringing mines into production on time and budget! That ability and the quality of their projects puts them on par with Barrick's track record and they can very well stand on their own. A factor 3 increase in the share price is definitely on the horizon once this happens. I'll just wait a bit, if there isn't another global equity selloff around the corner - that could be toxic in the near term (and taking even greater percentual profits off the table), the thunderstorm clouds are just too big right now, with $500bn adjustable mortgages hitting the repricing-fan this and next year...

Fortunately, too, that Yamana has hedged their copper from Chapada for three years (Trey Wasser had a comment about this on this side earlier) - they shouldn't be concerned of any "base-metal producer" discount any more. Also, that pays a couple times over for Chapada's construction cost, without being drawn in any base metal crash-vortex, once the realization sets in that less houses means also less cables and less factory expansions meaning less cables and... you get the picture. Gold is a currency and copper a consumable. Good luck, Northern Orion, in building a 38-mile long conveyor belt from "Aqua Rica" (what a mis-picked name) to Alumbrera on their own.

Fortunately (lucky three), Yamana cleverly did make the takeover conditional and will not be required to take than risk and additional copper exposure. Northern Orion puts, anyone? I'll stick with Yamana, an excellent executer with occasional Napoleon complex.

2007 Aug 27 08:40 PM