Canada's Goldcorp Inc agreed to buy Argentina-focused gold miner Andean Resources Ltd for C$3.6 billion ($3.4 billion), trumping a competing offer from rival Eldorado Gold Corp.
The takeover is the latest in a series of gold mining deals this year, including Australia's Newcrest Mining's $8.4 billion purchase of rival Lihir Gold, as near-record prices for the metal boost the hunt for reserves and pump cash into the sector.
Gold consumption rose by more than a third in the second quarter of 2010 and is set to stay strong with India, China providing the main thrust. Investment demand is also seen firm amid uncertainty about the global economic outlook, which boosts the appeal of gold as a safe haven.
Andean's plan to sell does not come as a surprise. It was set up to be taken over at some stage. It was a question of how and what price, said Tim Barker, Portfolio Manager at BT Financial Group. The pricing and the premium looks pretty reasonable.
Goldcorp said its cash and share offer -- at C$6.50 per share a 35 percent premium to Andean's last traded price in Toronto -- had been unanimously approved by the boards of directors of both companies.
Andean Australian-listed shares jumped 30.9 percent to a record high in Sydney trading to A$6.40 before being placed on trading halt.
Goldcorp's offer topped an all-share bid from Eldorado worth C$6.36 a share. Earlier on Friday, Eldorado said it was taking its offer to shareholders after the companies failed to reach a deal following protracted negotiations.
Goldcorp said Andean's principal asset was its 100-percent owned Cerro Negro Gold project in the southern province of Santa Cruz in Argentina, which would add to its gold production pipeline.
With an estimated reserve roughly equal to the output of the world's second-biggest gold mine in a single year -- Navoi Mining & Metals 2.4 million ounce per year Muruntau mine in Uzbekistan -- Cerro Negro's owner are getting top dollar for the operation.
However, analysts said the willingness to pay the equivalent of the Joint Ore Reserves Committee (JORC) reserve at current gold prices, suggests the bidders expect to find more gold if they expand exploration.
While equity analysts put Andean's fair price at C$6.5 to C$6.6 a share, in line with the Goldcorp offer, they added Kinross, Yamana Gold and AngloGold Ashanti are well positioned to consider a bid.
However, Kinross made a $7.1 billion all stock offer for Red Back mining on August 2..
Neither Goldcorp or Eldorado disclosed whether a deal would add or cut earnings. Analysts expect Cerro Negro to ramp up production only in 2013.
Andean is advised by BMO Capital Markets, Goldcorp by CIBC World Markets and Eldorado by GMP Securities4.
The mining sector is leading the global M&A activity, which recorded $267 billion worth of deals in August, making it the biggest month since June 2009, Thomson Reuters data showed.
The materials sector has seen a 30 percent rise in deals with global miner BHP Billiton leading the charge with a $39 billion offer for Canada's Potash.
($1=1.052 Canadian dollar) (Additional reporting by Krishna N. Das in Bangalore and Nick Trevethan in Singapore; Editing by Valerie Lee and Lincoln Feast)