Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Canadian Yamana Gold Inc. (TSX:YRI) (NYSE:AUY)(LSE:YAU) announced a $400 million acquisition Monday of Argentina-focused junior miner Extorre Gold Mines (AMEX:XG) (TSX:XG), which has an appealing gold-silver project in the South American country, while also saying it plans to increase its dividend by 18%.
Extorre’s flagship asset, Cerro Moro, contains roughly 1.36 million ounces of gold equivalent indicated mineral resources, and 1.05 million ounces of inferred mineral resources.
Under the terms of the deal, each Extorre shareholder will get $4.26 per share, comprised of $3.50 in cash and 0.0467 of a Yamana common share, for each share held.
Extorre has been languishing near 52-week lows of $2.18 a share. In the last year Extorre has lost 61%.
In a statement, Yamana said the transaction value, net of cash and on a basic shares outstanding basis, is approximately $395 million, representing approximately three per cent its pro forma market capitalization.
“In our view, it is one of the best undeveloped, high-grade opportunities in the Americas,” said chairman and CEO Peter Marrone, adding that Yamana has the operational, jurisdictional and financial strength to advance the project on a timely basis to benefit all stakeholders.
Some miners have been souring on Argentina and its politics. Ross Beatty, the founder of Pan America Silver and Equinox Resources, has seen his Lumina Copper take a big hit due to the country’s politics.
“You know, you just can’t get a worse political investment climate that you have in Argentina today. It is such a tragedy since it is such a great country in so many other ways,” said Beatty in an interview at the World Resource Investment Conference earlier this month.
Based on Friday’s closing price of Yamana shares of $16.36 on the Toronto Stock Exchange, the implied $4.26 per share values the deal at about $414 and represents a premium of about 54 per cent over the 20-day volume weighted average of Extorre shares on the TSX, Extorre said in a separate announcement.
Yamana operates in Brazil, Argentina, Chile, Mexico and Colombia. The gold miner plans to expand by targeting other gold consolidation opportunities with a primary focus in the Americas.
