Investors arguing that gold mining stocks are sitting at historically low valuations were given a serious boost to their case, in the form of the sector’s latest takeover offer.
Word leaked out on Nov. 15 that Jaguar Mining (JAG-T, JAG-N) received an offer from Chinese firm Shandong Gold Group that valued Jaguar at US$1 billion. The figure represents a high 77% premium on Jaguar’s 20-day, volume-weighted average share price.
Considering that healthy takeover premiums seldom break the 30% mark, the Shandong offer speaks not only to the deep pockets of the Chinese firm, but also to just how beat-up it considered Jaguar’s share price to be.
The all-cash offer breaks down to Jaguar shareholders being offered $9.30 for each of their shares. But despite that lofty sum, Jaguar shares only touched as high as $8.13 in the days following word of the offer. At presstime the company’s shares traded for $7.67. While the figure is considerably higher than the $5 to $6 range shares had traded over much of the last four months, the company’s failure to reach the offer level signals that market participants aren’t expecting a rival offer.
If no such offer comes and Shandong is successful, the deal would be one of the biggest overseas acquisitions by a Chinese gold miner and would signal that the country’s leaders are taking a new strategic interest in the yellow metal. Chinese firms have been relentlessly scooping up diversified mining assets held by Western-based companies for the last five years.
Shandong Gold is one of China’s largest gold miners, with 685,000 oz. gold production in 2010.
The company says it has 28.2 million oz. of non-National Instrument 43-101-compliant gold resources.
Based in the U.S., Jaguar Mining calls itself one of Brazil’s fastest-growing gold producers, and it is largely focused on the greenstone belt in the Brazilian state of Minas Gerais.
The company has three operating gold mines there called Turmalina, Paciencia and Caete, and expects to produce just over 160,000 oz. gold this year.
Its pipeline is dominated by the Gurupi project in Brazil’s Maranhao State, where a feasibility study on the project was released this January.
That study outlined a mine that would go into production in 2013 and produce 150,000 oz. gold per year over a 13-year mine life.
The project has resources of 69.89 million tonnes grading 1.12 grams gold for 2.5 million oz.
So far the company has yet to outline a large-scale deposit of the magnitude that senior players such as Barrick Gold (ABX-T, ABX-N), Newmont Mining (NMC-T, NEM-N) and Goldcorp (G-T, GG-N) yearn for, and that could reduce the chances of a rival bid.
Kinross Gold (K-T, KGC-N) could find synergies with the Jaguar assets with its operating mines in Brazil, but the major recently completed an expensive takeover of Red Back Mining and is spending much of its energy and capital on the Tasiast gold project in Mauritania.
As for Jaguar management’s reaction to the bid, the company would only confirm its existence – word of the bid was leaked to Reuters through two anonymous sources said to be close to the deal – and that its board is investigating alternatives.
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