Reuters: More gold company mergers seen in wake of Glamis takeover

From Reuters
Thursday, August 31, 2006

http://asia.news.yahoo.com/060831/3/2p9rf.html

NEW YORK -- Goldcorp Inc.'s move to acquire Glamis Gold Ltd. for $8.6 billion is just the latest in an expected flurry of takeovers in the gold mining business, analysts said on Thursday. The deal comes nearly four months after Goldcorp agreed to buy some Placer Dome assets from Barrick Gold Corp. and after Glamis closed its takeover of Western Silver Corp.

And it was just last year that Glamis was the aggressor, trying to buy Goldcorp in a hostile deal. Goldcorp rebuffed that offer and instead merged with Wheaton River Minerals Ltd.

"I believe there will be an explosion (in deals) in the next 12-24 months with the influx of speculative capital," said Peter Spina, who operates the investor Web site, Goldseek.com. "There is still a lot of interest there, especially if the price of gold heads back towards $700-$800."

Gold was selling for around $625 per ounce on Thursday. When bullion nudged through the $600 barrier in April, it was a level not seen since December 1980.

Frank Holmes, chief executive of U.S. Global Investors, a $5 billion fund based in San Antonio, Texas, said more consolidation was inevitable, given the price of gold and the costs of exploring for it.

"There will be more consolidation as people can't find projects," Holmes said. But he declined to speculate which companies might be vulnerable to takeover.

Mines only have a limited life, he noted, and it takes several years from exploration to full production. So it makes sense for major gold producers to buy up smaller, junior companies, who have one of two projects in exploration, rather than invest in the exploration themselves.

Vancouver-based Goldcorp has operations throughout the Americas and in Australia. Glamis, which is based in Reno, Nevada, has gold mines and development projects in Nevada, Mexico and Central America.

The Glamis deal will catapult Goldcorp into third place with market capitalization of $21.3 billion, behind the world's No. 1 producer Barrick and No. 2 Newmont Mining Corp. .

But Chief Executive Officer Ian Telfer said Goldcorp will not immediately seek an even bigger acquisition. "We certainly don't have Barrick in our sights at this point," he told Canada's ROB TV. "Right now I don't think we have anything else in our sights."

For its part, Barrick has been very active recently and is pursuing a hostile $1.29-billion bid for NovaGold Resources Inc. . Barrick holds a 30-percent interest in NovaGold's Donlin Creek project in Alaska.

In contrast, Denver-based Newmont has been conspicuously inactive. "I am surprised Newmont has not made a step," said Spina. "Barrick is No. 1, Goldcorp is No. 3, and Newmont is sitting there at No. 2 with reserves and production declining. They should be in the market pretty soon."

In addition to outright takeovers, there are moves involving joint ventures or majors funding juniors.

But for all the big deals, some do not please everyone. Holmes, of U.S. Global Investors, does not approve of the Goldcorp-Glamis deal. "This is a change of strategy (by Goldcorp) that concerns me. This is just not accretive to cash flow," he told Reuters.

Shareholders might have agreed -- Goldcorp stock fell $2.81, or 9.22 percent to close at $27.66 on the New York Stock Exchange on Thursday. Glamis, on the other hand, was up $7.26, or 18.68 percent, at $46.12.

U.S. Global Investors has a large position on Goldcorp. As of June 30, Goldcorp represented approximately 23.8 percent of its Gold Shares Fund (USERX) and 18 percent of its World Precious Minerals Fund (UNWPX).

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