By Kishori Krishnan Exclusive To Gold Investing News
Are mining mergers back in the fray?
Crocodile Gold Inc has reportedly arranged a $35 million syndicated equity financing related to its plan to merge with Franc-Or Resources Corp (TSX:FOR) and develop mining assets in Australia.
Crocodile Gold is a private Canadian company that recently completed the acquisition of a number of past-producing gold assets in Australia’s Northern Territory from GBS Gold. A syndicate of underwriters led by Macquarie Capital Markets Canada Ltd and Cormark Securities Inc have agreed to buy at least 35 million subscription receipts at $1 each, with the option to buy up to 20 million more at that price.
Merchant bank Endeavour Financial Corp (TSX:EDV) has said that it plans to take up to a 54 per cent stake in junior gold miner Etruscan Resources Inc (TSX:EET) through a US$43-million financing plan.
Endeavour has agreed to buy 153 million shares at 30 cents each through a private placement that “is part of a comprehensive financial re-engineering being undertaken by Etruscan which is to include a substantial restructuring of Etruscan’s debt facilities.” The company said the moves will help it meet short-term financial needs, improve operating cash flow, increase its leverage to rising gold prices and position it for future growth initiatives.
September began with South Africa’s Competition Commission giving the green signal to the merger of the Buffelsfontein Gold Mine (BGM) and the Tau Lekoa mine, inclusive of the Weltevreden and Goedgenoeg properties, gold and uranium producer Simmer & Jack Mines has said.
South African gold major AngloGold Ashanti agreed to sell the Tau Lekoa mine to Simmers for R600-million.
Cashed-up goldminer Catalpa Resources is setting its sights on further acquisitions after the merger with Lion Selection. Catalpa shares have leapt about 600 per cent since November, when the share price languished at 2¢. After the announced merger, shares are trading at 14¢, giving the goldminer a market capitalisation of about $164 million. The merger is expected to be completed in November.
With $20 million cash in the bank, the Perth-based company said that it is ”looking around” at opportunities locally and overseas to grow Catalpa into Australia’s next mid-tier gold producer.
Helping it achieve that goal is Catalpa’s Edna May gold project in Western Australia, which is expected to start production by July next year and help fund further acquisitions.
Catalpa chief executive Bruce McFadzean said they would be interested in buying Newcrest’s 70 per cent stake in the Cracow goldmine in Queensland, of which its owns 30 per cent after the Lion Selection merger.
In June, Xstrata proposed a “merger of equals” with fellow diversified giant Anglo American. This proposal has been repeatedly rejected by Anglo’s board. If Xstrata announces that it doesn’t intend to make an offer for Anglo American, it’ll be restricted from making any offers to Anglo for six months.
On Friday, Anglo American again rejected the proposed merger, saying that nothing had changed since June, when it stated that the strategic case for the merger was unattractive for Anglo American shareholders.
Share price slides
Investors appear to back out too, when mergers are terminated. Like Vancouver’s Klondex Mines Ltd (TSX: KDX) which saw its share price fall 24 per cent on Monday, after the company said it was terminating its $80 million merger with an Ottawa-based mining firm, Paramount Gold and Silver Corp.
And then there is the case of Osiko Mining Corp, which fell and proved to be the biggest loser in the S&P/TSX at the start of the week, Monday. The gold exploration company said it may buy a 50 per cent stake in the Mountjoy gold property in Ontario as part of an option agreement it signed with Claim Post Resources Inc.
Following the merger, the merged group will seek to progress development and finance of its two advanced development stage projects, Kylylahti and Roseby copper project.
Post merger the cash balance would be in excess of A$30 million. The combined potential annual metal production would be equivalent to 36,000t copper with substantial, gold, nickel and zinc credits.
HudBay Minerals Inc (TSX:HBM) shares soared Tuesday to their highest price in more than a year as investors reacted to the company’s excitement over evidence of a major new copper-gold zone in the Flin Flon area of northern Manitoba.
HudBay stock jumped more than 15 per cent on the TSX after the Toronto-based zinc and copper miner touted its new copper-gold mineralization zone, a find the company’s CEO called one of the best he has seen in four decades in the mining business.
Signs of recovery
Clear signs of recovery appear to have energised metal funds which generated robust returns in September as commodity prices rose on signs of a global economic recovery.
Economically sensitive stocks have rallied because there is data confirming a rebound, said Benoît Gervais, a fund manager with Mackenzie Financial Corp, adding that there is a synchronized recovery between developed and emerging markets.
He cautioned that there could be a pullback in the resource and the metal sector if there were any signs that the recovery had stalled.
Base metal and gold stocks have started doing well late last fall. Paul MacDonald, a manager with Mavrix Fund Management Inc agreed that more positive economic data was needed for the next leg up in the resource sector. “Stocks are no long as cheap as they were three or four months ago,” he noted.
Mergers and acquisitions appear to be helping keep the rally alive, said MacDonald, manager of Mavrix Explorer Fund. “The ones with the stronger balance sheets are buying ones with weaker balance sheets.”