Goldcorp, Wheaton forge million-oz. producer

Wheaton River Minerals (WRM-T) has finally found a deal it likes — a friendly merger offer from Goldcorp (G-T) for a 1-for-4 share swap.

Goldcorp is the one paying the premium, about 7% over Wheaton’s average price in the past month. The all-paper offer represents a cash value of $4.29 per share for Wheaton.

The new board would have 10 directors, five of whom would be nominated by Wheaton. And Wheaton’s chief executive Ian Telfer would take over as chief executive. Goldcorp’s current chairman, Robert McEwen, would continue at the head of the board. Two Wheaton officers, Russell Barwick and Peter Barnes, would be chief operating officer and chief financial officer, respectively.

An earlier takeover offer for Wheaton, first launched in late May by Coeur d’Alene Mines (CDE-N), was valued at $4.29 as well, after a series of changes to the bid. That offer failed to get the requisite number of shares, and Coeur abandoned it in late September.

The original offer in May was for $4.50 per share, based on Coeur’s share price at the time; subsequent price declines forced increments to the bid over the summer.

That bid had helped break up a friendly deal announced between Wheaton and Iamgold (IMG-T) in March, which would have seen Wheaton shares traded for 0.55 of an Iamgold share. At the time, that offer represented a cash value of $4.60 per share.

Wheaton still requires a fairness opinion from its financial advisers, and Goldcorp’s offer is conditional on satisfactory due-diligence investigations and on seeing a minimum of two-thirds of Wheaton shares tendered to the bid.

There is a break fee of US$35 million for Goldcorp if Wheaton gets a superior offer. A 21-day exclusive negotiation period, starting Dec. 5, will allow the companies to complete due-diligence investigations.

Goldcorp will not be taking the deal to its shareholders for a vote.

The newly merged company, to be named Goldcorp, would have an impressive set of stats:

— Gold production in 2005 would exceed 1.1 million oz. at a cash cost of just US$60 per oz., rising to 1.5 million oz. per year in 2007 taking into account existing growth plans. The asset base would be anchored by Goldcorp’s rich Red Lake gold mine in Ontario and Wheaton’s 37.5% interest in the Alumbrera copper-gold mine in Argentina.

— Reserves would stand at 10.5 million oz. gold and resources at 9.5 million oz. — all unhedged.

— The company would have no debt and more than US$500 million in cash and gold bullion, plus another half billion in marketable Silver Wheaton securities.

— The market capitalization may exceed US$5 billion and trading liquidity could regularly surpass US$60 million daily.

The new company would continue to pay out a dividend, though it may not be as rich as Goldcorp’s current one. However, on the upside for Goldcorp investors, they will now be able to trade warrants on the stock, as Wheaton’s existing warrants will continue to trade on a pro forma basis.

The new company will also continue Goldcorp’s unique strategy of holding back gold production from at least the Red Lake mine — a useful response to Ontario’s relatively high corporate taxes.

Head office employees will be relieved to know that the merged company will retain offices in both Toronto and Vancouver for the foreseeable future.

“This is a tremendous moment for both companies,” said McEwen in a conferece call. “For Goldcorp, it achieves all our strategic goals of production growth, asset diversification and maintenance of financial strength, and it addresses senior management needs.”

He added: “I like this combination as a shareholder; we have a chance to double or triple our money in the coming two years.”

For Wheaton, Telfer said, the deal recognizes the importance U.S. investors place on company size and reduces the company’s focus on copper, with copper production falling to about 20% of revenues from 2006 onward.

The conference call quickly became a love-fest between McEwen, Telfer and the overwhelming majority of shareholders and analysts on the line.

“These guys at Wheaton have done a terrific job building their company; they have got a lean cash-flow machine,” said McEwen. “We thought they had the same entrepreneurial skills; they just run a little faster building assets while we’ve been building one world-class asset.”

Chimed in Telfer: “It’s one of those situations where the closer we got to it, the better it looked, and it got more exciting as time went on. This opens up vistas for both companies.”