Yamana goes for more in Latin America

The intense pace of acquisitions continues for Yamana Gold (YRI-T, AUY-X, YAU-L) as it drives towards becoming a dominant player in Latin America.

On Aug. 16, the Toronto-based company made an all-share, friendly takeover offer for Vancouver-based Viceroy Exploration (VYE-T, XVE-X) worth roughly $577 million.

If successful, it would be Yamana’s third acquisition this year. It would also push the company into the upper echelon of mid-tier producers, extending its asset base beyond Brazil, Honduras and Nicaragua.

Yamana currently has eight projects in Brazil, including two producing mines. Viceroy’s flagship advanced exploration project, Gualcamayo, is located in Argentina’s San Juan province.

The main thrust behind the deal is Yamana’s belief in Gualcamayo. Viceroy says Gualcamayo is conducive to heap-leach extraction, and estimated the capital costs of a completed mill at under $100 million.

Yamana has stated it believes a feasibility study there would give the project a mineral reserve in the range of 2 million oz. and that the site would eventually produce 160,000 oz. gold per year.

Salman Partners’ analyst Rodney Stevens says that while an assumption of 2 million oz. is a “bit aggressive” at this point, the amount being paid is in line with historical transactions — if the assumptions are correct.

The day following the announcement, Yamana’s shares were off nearly 5%, or 55 to $10.65 on roughly 5.5 million shares.

Viceroy’s shares rose toward the premium being offered by Yamana, gaining roughly 20% or $1.74 to $10.39 on about 4.6 million shares the day after the proposed deal was announced.

Based on Aug. 16 closing prices, Yamana’s offer of 0.97 of a Yamana share for every Viceroy share represented a 25.5% premium.

In a conference call a day later, Yamana’s president and chief executive, Peter Marrone said value, resource potential, regional potential, the strategic benefits gained by diversifying into another country and added copper exposure were all motivators behind the offer.

From the point of view of Viceroy’s president and chief executive, Patrick Downey, the deal is good for Viceroy because Gualcamayo will gain Yamana’s expertise in building mines. Downey plans to stay with Yamana if Viceroy is acquired.

“We were impressed by Yamana’s assets and more importantly by its people,” Downey said. “We were impressed with it taking two mines and building them with its own management, on time and on budget.”

Marrone emphasized that both companies are eager to work together.

“Pat (Downey) didn’t have to do a deal. We did something that was the right thing to do,” Marrone said on the call. “We said, ‘come visit our assets in Brazil,’ and my sense is (Downey) found a lot of value there that really wasn’t recognized.”

The combined company would have a total measured and indicated resource of roughly 11.8 million oz. gold plus inferred resources of about 6.9 million oz. — not including Gualcamayo’s resource update, which is due at the end of August. Marrone says the combined company would target production of 1 million oz. gold by 2008.

Proven and probable gold reserves for the new company would be roughly 7.2 million oz. In addition, proven and probable copper reserves would move to roughly 2.3 billion lbs.

Yamana had already strengthened its position in Brazil earlier this year with the US$500-million acquisition of Desert Sun Mining and its Jacobina gold mine. Prior to that, in February, it gained two Central American mines with its acquisition of the former RNC Gold.

In a recent interview with Report On Business TV, Marrone addressed concerns that the run of acquisitions might be putting too much on Yamana’s plate. Marrone said as with Desert Sun, Yamana plans to make its plate bigger with Viceroy by bringing key members from the acquired company’s management team on board.

“I don’t think a company should be penalized because it is more aggressive than another or does things at a faster speed than another,” Marrone said. “So long as it does things well.”