A little more than two years ago, the co-founders of a small Canadian mining company unearthed a gold-and-silver deposit in southeastern Ecuador that industry experts believe is the most significant discovery in at least a decade.
That find has turned into a $1.2 billion bid for Aurelian Resources by Kinross Gold, part of an industrywide buying spree that has accelerated as the market value of mining companies has tumbled.
The buyouts are expected to keep coming with major producers looking for new resources and investors seeking shelter from what has become a volatile market.
Gold has hovered around $900 an ounce, silver around $16.50 an ounce and copper around $3.50 a pound in the past year, but the Toronto Venture Index, which includes mining companies, has fallen 35 percent at the same time, said Canaccord Adams analyst Wendell Zerb.
“Despite what could have been a great commodity-price environment for junior mining, credit issues and economic concerns have overwhelmed all else,” Zerb said Monday.
Major producers are window shopping for smaller companies and new exploratory rights. A similar spate of deals has occurred in the coal industry, with a growing string of giant acquisitions centered on coking coal, a key raw material for certain steel mills.
Two banner deals in the precious-metals sector include the Kinross-Aurelian Resources union and Goldcorp Inc.’s $1.46 billion bid for Gold Eagle Mines Ltd., all Canadian companies.
“Both of those have a component of using the major’s equity position so they’re issuing stock . . . an indication that they feel the value of their stock allows them to move in that manner,” Zerb said.
Industry experts say more buyouts are likely because commodity prices have remained neutral and mining companies always need more reserves.
“It’s generally more expensive to go out and buy an existing project than it would be to discover one on your own, but the purchase of a project alleviates a lot of the risk,” Dundee Securities analyst Paul Burchell said.
Aug. 6: Swiss mining giant Xstrata offers $10 billion to take over rival Lonmin, the world’s No. 3 platinum producer; the offer is rejected.
July 31: Goldcorp says it will acquire Canada’s Gold Eagle Mines for $1.46 billion in cash and stock; deal is expected to close in September.
July 24: Toronto-based Kinross Gold plans to acquire Canada-based Aurelian Resources for $1.2 billion, including Aurelian’s gold, silver and base-metals reserves in Ecuador.
July 23: Canada’s Iamgold acquires participation royalty on the Doyon/Westwood property in Quebec from Barrick for $13 million. The deal eliminates the royalty obligation on the Doyon mine, which is 24.75 percent of the gold price above $375 per ounce.
July 21: Barrick offers $407.8 million to acquire oil and natural-gas producer Cadence Energy of Calgary, Alberta.
May 13: Canada’s Silver Wheaton agrees to pay $80 million to Farallon Resources to buy a majority of the silver produced at its Campo Morado site in Mexico.
The Associated Press
