GOLD STOCKS NEWS – Gold stocks climbed on Monday as the Market Vectors Gold Miners ETF (GDX) rose $0.87, or 1.9%, to $47.79 per share. This afternoon’s strength in gold stocks and the GDX coincided with a rebound in COMEX gold futures and a modest rally in the broader markets. The yellow metal bounced back from an overnight low of $1,606.90 to close down by just $1.10 at $1,627.00 per ounce. As for the S&P 500 Index, it added 0.4% to 1,347.73, its best level since May 14th.
The GDX and most gold stocks received an extra boost today from the most recent transaction in a growing trend of merger and acquisition (M&A) activity in the sector. This morning, Yamana Gold (YRI.TSX, NYSE: AUY) – one of the world’s ten-largest gold producers – announced that it signed a definitive agreement to acquire Extorre Gold Mines (XG.TSX, AMEX: XG) for C$414 million.
Extorre is an emerging gold company whose flagship asset is the Cerro Moro deposit in the Santa Cruz province of Argentina. In April of this year, Extorre released the results of an updated resource estimate for Cerro Moro – which outlined a combined open pit and underground operation with potential production of 248,000 gold-equivalent ounces per year at cash costs of $303 per ounce over the first five years.
Under the terms of the transaction, Extorre shareholders will receive C$3.50 in cash and 0.0467 of a common share of Yamana per Extorre share. Based on Yamana’s most recent closing price of C$16.36, the implied acquisition price for XG.TSX is C$4.26 per share. This equates to a premium of 54% relative to Extorre’s 20-day volume weighted average price.
In afternoon trading, XG.TSX was the top performing name in the gold stocks sector, as it soared 66.9% to C$4.24. Shares of YRI.TSX, which had fallen 2.9% to C$15.88 this morning, later turned higher by 2.1% at C$16.70.
Extorre will hold a shareholder vote in August, where it will need at least a 66.7% approval rate for the transaction to close. Yale Simpson, co-Chairman of Extorre, stated that “The Cerro Moro project fits very well into Yamana’s portfolio and Yamana has both the operational experience in Argentina and financial strength to develop the project on a timely basis.”
As for Wall Street’s take on the latest deal in the gold stocks sector, TD Securities analyst Steven Green wrote in a report to clients that “In our view, the deal is being done at a very attractive price, which has been made possible by sector valuations and the recent rise political risk in Argentina, and makes a lot of sense from Yamana’s perspective, adding a high quality project opportunistically.”
Green went on to note that on a net asset value basis, Yamana is paying a lower price than its fellow GDX components – including IAMGOLD (IAG), Eldorado Gold (EGO), and AuRico Gold (AUQ) – each did when they made similar types of acquisitions over the past 12 months.
Other notable gold stocks in the black this afternoon, in conjunction with the GDX, included Kinross Gold (KGC) and Harmony Gold (HMY) – which climbed by 3.3% to $9.15 and by 2.3% to $10.52 per share, respectively.