Desert Sun rises on Yamana bid (March 13, 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. gold in 2006 and Desert Sun’s Jacobina mine complex about 100,000 oz.

Jacobina saw a significant increase in reserves in 2005, to 21.6 million tonnes grading 2.2 grams gold per tonne. The mine had operating costs of US$265 per oz. in the fourth quarter and US$292 per oz. in the third quarter of 2005.

Yamana has a number of gold and copper-gold projects in Brazil scheduled to come on-stream over the next couple of years. The Sao Francisco project in Mato Grosso state, an open-pit and heap-leach gold producer, is slated to produce 120,000 to 125,000 oz. gold in this, its first full year of production, while the large Chapada copper-gold mine in Goias state, currently in the construction stage, is expected to be in early production late in the year. A third project, Sao Vicente, near Sao Francisco, is awaiting a production decision.

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. Each has about 50,000 oz. in its mine plan for 2006.

The RNC acquisition also brought in the Cerro Quema gold project in Panama, and Desert Sun has a large land package in the Jacobina gold belt, including an active prospect at Pindobau.