Desert Sun rises on Yamana bid (February 22, 2006)

A friendly bid from Yamana Gold (YRI-T, AUY-X, YAU-L) to take over Desert Sun Mining (DSM-T, DEZ-X) would see the creation of a 450,000-oz. gold producer in the near term.

Yamana is offering 0.6 of a Yamana share for shares of Desert Sun, valuing the company at $5.47 per share or $574 million. Taking up Desert Sun’s 19.7 million outstanding warrants would cost another $108 million, assuming they are exercised, but that would also put about $49 million into the new company’s treasury.

Desert Sun shareholders would own 24% of the new company. The proposal goes to them at a meeting currently scheduled for March 31, and needs a two-thirds majority of votes to pass.

Together, Yamana and Desert Sun have about 7.5 million oz. gold in reserves. Each company operates a mine in Bahia state, Brazil. Yamana’s Fazenda Brasileiro mine is slated to produce between 80,000 and 85,000 oz. in 2006 and Desert Sun’s Jacobina mine complex about 100,000 oz.

Yamana recently swallowed junior producer RNC Gold for $56 million to secure the La Libertad mine in Nicaragua and the San Andres mine in Honduras.