Goldcorp dekes out Agnico-Eagle with Gold Eagle bid

The pace of takeovers in the mining sector shows no signs of slowing, with the latest move seeing heavyweight Goldcorp( G-T, GG-N) making a friendly $1.5-billion cash-and-shares bid for Gold Eagle Mines (GEA-T, GEAFF-O).

The takeover provides Goldcorp with an opportunity for more area consolidation as one of its main assets, the prolific Red Lake gold mine in northwestern Ontario, is close to Gold Eagle’s Bruce Channel gold discovery.

The deal would see Gold Eagle shareholders receive $6.80 in cash plus 0.146 of a Goldcorp share for each share held. A holder may also elect to receive $13.60 in cash per share, with no Goldcorp shares, or 0.292 of a Goldcorp share with almost no cash (one hundredth of one cent) per share. The bid represents a 19% premium on Gold Eagle’s closing stock price on July 30, and a 36% premium on the volume-weighted average stock price for the 20 days prior to the takeover announcement.

Gold Eagle management and directors, as well as shareholders representing 10.5% of Gold Eagle’s share ownership, have agreed to vote in favour of the offer. At least two-thirds of Gold Eagle shareholders must vote in favour for the deal to go ahead.

The offer appears to be designed to pre-empt a possible rival bid by Agnico-Eagle Mines (AEM-T, AEM-N), which already owns about 7.1% of Gold Eagle’s shares fully diluted (if Agnico were to exercise all its warrants) — a higher stake than Goldcorp’s current 4.7% interest.

Agnico-Eagle acquired its shares and warrants in a $50-million private placement in June, but so far, has not expressed an interest in acquiring Gold Eagle.

In response to a question during a conference call to discuss the bid, a Goldcorp executive said that he did not know how Agnico-Eagle intended to vote its shares. A call requesting comment from Sean Boyd, Agnico-Eagle’s CEO, was not returned at presstime.

The Bruce Channel discovery is located about 700-800 metres beneath the Bruce Channel waterway that separates McKenzie Island from the mainland, and Goldcorp believes it is a down-plunge extension of its past-producing Cochenour-Willans mine, immediately to the northeast. The Bruce Channel is adjacent to the Red Lake mine, and is situated along the Red Lake trend.

With nearly 200 holes drilled at Bruce Channel, the mineralized zone defined so far has a vertical dimension of 1,450 metres, horizontal dimensions of 800 by 450 metres, and is open in all directions. As can be expected, it is geologically similar to Goldcorp’s nearby mines. Gold Eagle has come across many occurrences of high-grade mineralization and visible gold in drill core. For example, one hole drilled in July returned 4.5 metres of about 13 grams gold per tonne.

However, a resource estimate has not been established for the deposit.

During the conference call, Goldcorp executives said that Gold Eagle did some of the drilling in Bruce Channel from the Cochenour-Willans mine, and Goldcorp personnel observed the drill core. It is clear that, based on assays released to date, plus what its people could see in the core, Goldcorp is convinced that the economics of the deposit justify the takeover — even without a resource.

Goldcorp executive vice-president Charles Jeannes said that the deal solidifies the company’s dominance of the Red Lake camp.

“We have acquired potentially a world-class high-grade resource in one of the safest mining jurisdictions in the world,” Jeannes said. “We are very comfortable that this acquisition will prove accretive to our shareholders from the point of view of net asset value per share, reserves and resources per share, as well as cash flow and earnings once the mine is producing.”

Jeannes added that the deal creates significant synergies with Goldcorp’s existing infrastructure in the Red Lake district, such as mill and tailings disposal facilities. Earlier underground access for delineation drilling will be provided using the existing Cochenour shaft, and the main production shaft could be on the mainland. The first step will be to dewater and rehabilitate the Cochenour shaft.

The merger will also allow Goldcorp to develop resources in Cochenour that are uneconomic on their own.

“We have been looking at this deposit and all the data for a long time, and we have developed a rigorous proprietary resource and financial model,” Jeannes said.

The only figure that Jeannes would disclose from the financial model was that the all-in production cost is estimated at below US$650 per oz.

“(The deal) will be accretive to Goldcorp shareholders on all metrics. . . (and it will) add significant value to one of our crown jewel assets,” he said.

The deal comes on the heels of Kinross Gold’s (K-T, KGC-N) bid for Aurelian Resources (ARU-T, AUREF-O) — signalling that the major gold producers need to replace their reserves, and more juniors with significant discoveries could see takeover offers.

On the day of the takeover announcement, Goldcorp shares fell $1.70 to $38.15 while Gold Eagle shares gained $1.71 to $12.28.