Time for Gold Miners To Consolidate?

By Brad Zigler

Consolidation is big in equitiesland nowadays as excess capacity is gobbled up in a Darwinian mergerfest. Now it's gold miners' turn. On Thursday, Canada's second-largest gold producer, Goldcorp (GG) announced plans to acquire junior miner Gold Eagle Mines Ltd. [TSW: GEA] for about C$1.5 billion in cash and stock. Under the terms of the friendly deal, Gold Eagle stockholders will receive C$6.80 in cash and 0.146 shares of Goldcorp for each of their shares.

No fire sale, that. In fact, Goldcorp.'s offer represents a healthy premium over Gold Eagle's Thursday market price of C$10.57. Depending upon the exchange rate used, the premium could be as high as 22%. Traders this morning apparently saw the lower end of the range, opening Gold Eagle trading at C$10.15, but rode offers up to C$12.60 by midmorning.

Goldcorp, which already owns 5% of Gold Eagle, is dangling the premium in front of shareholders to gain full control of Gold Eagle's rich Red Lake mining property before others - such as another 5% owner, Agnico-Eagle Mines Limited (AEM) - press their suits. Agnico-Eagle upped its ownership stake in Gold Eagle through a private placement in June.

Gold Eagle reported earnings of C$1.1 million (1 cent per share) for the quarter ending March 31, largely from the recognition of a future tax recovery.

In its last report, Goldcorp posted an unexpected $9.2 million (1 cent per share) second-quarter loss, following reductions in production forecasts and recognition of foreign exchange losses. The more interesting tidbits from Goldcorp's quarterlies, however, had to do with its margin trend. Goldcorp's cash margins averaged $589 per ounce while gold was buoyant, but that figure's sure to fall if market prices weaken further. Worse still, Goldcorp.'s extraction cost estimates have been bumped up from $250 to $300 an ounce.

Comments

[marxbites:]

Big whup. They'll have it in the ground - it's not getting less scarce and higher fuel prices affect all producers.

2008 Jul 31 02:01 PM

[GMiki1:]

Yeah, but gold prices will go up, etc. I do hold GG. It's not the most exciting stock in the market but it will do well, particularly when gold goes up and everything else goes down. Of course production costs have increased. And will increase again as oil prices keep on rising.

As for a 22 percent premium--that's a premium in what has been a depressed market. I don't begrudge the Gold Eagle shareholders their due.

2008 Jul 31 04:00 PM

[Clavis:]

Pity the poor share retailers at Aurelian Resources Ltd who thought that they had it in the ground but in this case the lemming management; though sitting on the biggest gold find in the last twenty years; sold out at a price which left the retailers in the lurch with negligible returns on their investments, a high share dilution to suite Kinross and to add insult to injury, warrants cashable in five years which may or may not be in the money.

2008 Aug 01 10:36 AM

[rwf:]

NGG.V (NGUGF) at .43 is a screaming buy and it should be acquired soon, now that they are about to announce positive cash flow. New Guinea Gold...check it out.

2008 Aug 01 11:34 AM