Monday, 18 June 2012

Extorre Gold snagged by Yamana Gold for around $400 mln

Argentina-focused junior miner Extorre Gold Mines (AMEX:XG) (TSX:XG) said early Monday morning it has agreed to be bought by Yamana Gold (TSE:YRI) (NYSE:AUY) (LON:YAU) for some $400 million, with Yamana also announcing an 18 per cent dividend increase.
Extorre's most advanced asset is the Cerro Moro project, a high grade gold and silver deposit in Santa Cruz, Argentina, with 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.
Yamana said the offer, which has been unanimously recommended by Extorre's board, represents a 54 per cent premium to Extorre's 20-day volume weighted average price for the period ending June 15, and is almost 68 per cent higher than Extorre's closing price on Friday.
The parties said the transaction value, on a basic shares outstanding basis is roughly $414 million, or $395 million net of cash.
"Extorre’s share price has suffered dramatically over the past few months due to a number of factors including: global political and economic uncertainty impacting credit markets; a broad sell-off of all junior non-producing gold companies; concerns with respect to share dilution arising from a decision to develop the Cerro Moro project; and a series of events that have raised the perceived investment risk in Argentina," said Extorre's co-chairman, Yale Simpson.
"Management and the board of directors of Extorre diligently examined all of the available options to finance the Cerro Moro project to production, but given current market conditions, whatever financing mix was chosen, the result would be a serious erosion of the project returns.
"In conclusion, if Extorre were to lock into the current fiscal/operating environment, the value of the Cerro Moro project to shareholders would be significantly diminished. Aside from this, management did not believe shelving a development decision for any length of time would be viable."
Simpson further stated in a release on Monday that the Cerro Moro project fits "very well" into Yamana's portfolio, with Yamana having both the operational experience in Argentina and the financial strength to develop the project on a "timely basis".
"Given the full set of circumstances faced by the company, the board of directors of Extorre was unanimous in concluding that this transaction represents a good outcome for all stakeholders," Simpson concluded.
Each holder of an Extorre stock option will also be entitled to receive, upon exercise of options, Yamana shares based on a share exchange ration of 0.2648 of a Yamana share for each Extorre share.
Yamana is a Canadian gold producer with properties in Brazil, Argentina, Chile, Mexico and Colombia. The company plans to expand by targeting other gold consolidation opportunities with a primary focus in the Americas.
Extorre's 95 per cent-owned Cerro Moro project covers 177 square kilometres and is located roughly 70 kilometres southwest of the coastal port city of Puerto Deseado, and 130 kilometres east of the Cerro Vanguardia gold silver mine.
In April, the Vancouver-based junior miner released a preliminary economic assessment for the property that outlined a possible 1,150 tonnes per day (tpd), or 1,300 tpd combined open pit and underground mining operation that could potentially produce gold equivalent production of 248,000 ounces per year at cash costs of $303 per gold equivalent ounce for the first five years.
The 1,300 tpd throughput scenario is the preferred alternative due to higher metal production in the early years, the company said in April. In this scenario, the mine has a 24-month payback period, and pre-tax internal rate of return of 63 per cent, as well as a net present value, at a five percent discount, of $737.4 million.
"For the past few years, Yamana has been focused on organic growth and we plan to continue with this strategic direction moving forward," said Yamana chairman and CEO, Peter Marrone.
"We have recently indicated Yamana would consider tuck-in acquisitions in mining-friendly and familiar jurisdictions that fit our other criteria including opportunity for organic growth, accelerated path to development and production and high return.
"Extorre represents one of these opportunities. It is a relatively small transaction in that it represents only 3% of Yamana's market capitalization yet it could ultimately deliver more than 10% of our total gold equivalent production.
"While this represents only 3% of market capitalization, it could contribute to a multiple of that in cash flow growth. In our view, it is one of the best undeveloped, high-grade opportunities in the Americas."
The deal remain subject to customary conditions, including shareholder and regulatory approvals, with a special meeting for Extorre shareholders to approve the arrangement expected to be held on August 15.
The transaction, which also includes a $15 million break fee by Extorre to Yamana, has to be approved by two thirds of Extorre shares voted at the meeting. Yamana also has a right to match any superior offers.
Extorre said that senior officers and directors representing around 7.4 per cent of the company's shares have already agreed to vote in favour of the deal with Yamana.

Separately, Yamana also announced Monday a 4 cent increase in the company's annual dividend to 26 cents per share beginning in the third quarter, 18 per cent higher than the second quarter.
This represents the fourth dividend increase approved by the company in the past 12 months. The gold producer is expecting higher levels of cash flow in the near term as its C1 Santa Luz and Ernesto/Pau-a-Pique projects are soon expected to contribute to production.

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