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Market is prospecting for more gold mergers
By Rachelle Younglai
Reuters
Saturday, March 4, 2006
a href=http://ca.today.reuters.com/news/newsArticle.aspx?http://ca.today.reuter...
type=businessNewsamp;storyID=2006-03-
04T133808Z_01_N03540782_RTRIDST_0_BUSINESS-COLUMN-CANADA-MARKETS-
COL.XML
TORONTO -- Glamis Gold Ltd.'s recent bid for Western Silver is just
one more sign that the Canadian gold industry is consolidating and
many analysts expect more mergers and acquisitions this year as
miners hunt for resources.
After a year in which Barrick Gold Corp. launched its $10.4 billion
bid for Placer Dome to become the world's No. 1 gold producer and
Iamgold Corp. reached an agreement to buy Gallery Gold Ltd. for
about $200 million after failing twice to buy miners in 2004, the
sector is still abuzz with activity.
quot;So far the trend has not shown any sign of abating,quot; said Graeme
Currie, an analyst with Canaccord Adams. quot;Could we see another half
a dozen juniors acquired? I don't think that's outside the realm of
possibility at all.quot;
Driving the activity is the surge in metal prices along with the
need for more resources.
Mamp;A activity in the gold sector is less than in the early 1990s when
the bullion price was so depressed that companies were forced to
merge to cut costs. Activity has picked up since the turn of the
century, before the price of gold started on its bull run.
Since 2002, gold has climbed steadily from around $280 an ounce to
above $500. In recent months the price has hovered around 25-year
highs and on Friday settled above $560 an ounce in New York.
The price has given the Toronto Stock Exchange's gold sector a
boost. Last year the gold sector rose 21 percent, and this year it
is up 11.5 percent.
quot;With the rapid increase in zinc, copper prices, and last 6 months
in silver and gold prices, that helps fuel (Mamp;A activity), no
question,quot; said Currie.
So far this year, South Africa's Gold Fields Ltd. has gobbled up
Canada's Bolivar Gold for about $360 million, Barrick will soon
close its massive deal with Placer and Glamis has made its C$1.2
billion ($1 billion) bid for Western Silver.
Miners have also made quot;strategic investments,quot; like senior producer
Newmont Mining Corp. buying a 9.9 percent stake in Miramar Mining
Corp. for its project in Canada's Arctic.
Analysts point to companies that have executed and completed pre-
feasibility and feasibility studies on their projects as prime
candidates for being taken over.
quot;Absolutely this will be another big year, especially for mid-tier
producers,quot; said Michael Gray, an analyst with Pacific International.
quot;I think the ideal profile of what will be acquired will be 100
percent owned assets with no hedges. Companies that control belts
for the great exploration potential and future production.quot;
Gray also points to earlier stage acquisitions of companies that own
projects that are not producing yet, or don't even have published
resources, much like Goldcorp Inc.'s bid for Virginia Gold, which
owns the Eleanore project in Quebec.
quot;The seniors will continue to make strategic private placements in
juniors, including quiet market purchases that aren't announced, and
especially to get exposure into other countries,quot; he said.
Brian Christie, an analyst with National Bank Financial, disagrees.
quot;Not sure you will see a lot of consolidation given that you can
raise more equity. Companies can go at it alone,quot; he said.
quot;From a project financing perspective we are seeing a lot more
projects getting financed. ... Higher commodity prices have made
banks more comfortable with the space.quot;
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