M&A Kicks Up A Notch

As so often happens right after the Prospectors and Developers Association of Canada convention in Toronto, the tenth trading week of 2009 saw a surge in mergers and acquisitions activity, particularly among the juniors.

• One of the biggest of the little deals was Gammon Gold’s smart move to buy Capital Gold, in a friendly offer worth about US$150 million in shares. Based in New York City, Capital Gold has kept a relatively low profile in the industry, but has had great success building and operating its small but profitable El Chanate gold mine in Mexico’s Sonora state. Gammon Gold has had a shaky record on the operational side of things at its Ocampo gold mine in neighbouring Chihuahua state, so it can only benefit from Capital’s hard-won mining expertise.

• On the West Coast, the deal of the week was Silver Wheaton’s all-share offer to buy junior Silverstone Resources at about $1.47 per share, or roughly $190 million. Silverstone’s core assets are agreements to buy silver and gold from Capstone Mining’s Minto mine in Canada and silver from its Cozamin mine in Mexico, as well silver from Lundin Mining’s Neves-Corvo mine in Portugal.

• Some other recent deals were: Hochschild Mining’s $22.5-million bid for Southwestern Resources, just after the latter and Geoinformatics Exploration killed their proposed merger; Lucara Diamond’s plans to acquire fellow African diamond-focused junior Motapa Diamonds, and late February’s friendly merger proposal between Lions Gate Metals and Copper Fox Metals.

• On the down side, Forsys Metals’ suitor George Forrest International Afrique is having trouble coming up with funds to close its proposed $7-per-share acquisition of the Namibian-focused uranium junior. The closing date was originally in mid-March but that has now been extended to the end of July, and the break free bumped up to $20 million from $11.4 million.

Forsys owns Valencia, a permitted uranium mine in Namibia, which the company describes as continuing to display robust and improved economics from increased resources and grade.

• The long-suffering shareholders of Ivanhoe Mines drew some encouragement earlier in the week that the bureaucratic wheels were being set in motion again in Mongolia, as the national parliament there began considering a draft investment agreement covering the development of the Oyu Tolgoi copper-gold mining complex in the South Gobi. In theory, at least, this represents the final stage of the project’s approval process.

However, by week’s end, Ivanhoe’s shares had dropped a dollar as it emerged that the Mongolian parliament would resume sitting only in April, and would more seriously consider the draft agreement then. Mongolian parliamentary members only sit for a few months before taking a long summer vacation, so if a deal isn’t struck in the next few months, it may not happen until next year at the earliest.

Meanwhile, news emerged that powerful shareholders of Ivanhoe’s partner at Oyu Tolgoi, Anglo-Australian mining giant Rio Tinto, are trying to overturn the controversial US$19.5-billion proposed investment by Chinese state-owned Chinalco in Rio Tinto. There is also talk that the investment may be blocked by the Australian government in response to fears the Chinese government would gain too much control over one of Australia’s key export earners.

• At presstime, news had broken that Anglo American had sold its remaining 11.3% stake in AngloGold Ashanti to the New York-based hedge fund Paulson & Co. for US$1.28 billion, or US$32 per share. Paulson & Co. — a firm run by John Paulson– now ranks as AngloGold’s second-largest shareholder, and is eager to see the gold major expand its operations globally. Paulson & Co. also holds a 4.1% interest in Kinross Gold, making it the Canadian gold miner’s fourth-largest shareholder.

No surprise where the money’s coming from: Paulson’s Credit Opportunities Fund more than quintupled in 2007 on bets against the U. S. subprime mortgage market, and his flagship hedge fund returned 37% last year as most competitors suffered double-digit declines. And Bloomberg estimates Paulson’s firm may have made US$428 million since September by betting against the shares of Lloyds Banking Group and HBOS.

For Anglo American, the asset sale has long been in the works, and is part of its plan to sell off non-core assets and hunker down to weather the economic downturn that has devastated its core base metals businesses.

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