Goldcorp makes $3.4 billion bid for Andean Resources

By Narayanan Somasundaram and Julie Gordon

SYDNEY/TORONTO (BestGrowthStock) – Goldcorp (G.TO: ) agreed to buy Argentina-focused gold miner Andean Resources (AND.AX AND.TO: ) for C$3.6 billion ($3.4 billion), trumping a competing offer from fellow Canadian miner Eldorado Gold Corp (ELD.TO: ).

The takeover is the latest in a series of gold-mining deals this year, including Australia’s Newcrest Mining’s (NCM.AX: ) $8.4 billion purchase of rival Lihir Gold and Canada’s Kinross (K.TO: ) $7.1 billion stock bid for Red Back Mining (RBI.TO: ).

Near-record prices for the metal are boosting the hunt for reserves and pumping cash into the sector.

Goldcorp said its cash and share offer — at C$6.50 per share a 35 percent premium to Andean’s last traded price in Toronto — has been approved unanimously by the boards of directors of both companies.

Goldcorp’s offer topped an all-share bid from Eldorado worth C$6.36 a share.

“Andean’s plan to sell does not come as a surprise. It was set up to be taken over at some stage. It was a question of how and what price,” said Tim Barker, portfolio manager at BT Financial Group. “The pricing and the premium looks pretty reasonable.”

Andean’s shares closed up more than 45 percent at C$6.98 on the Toronto Stock Exchange, while Goldcorp shares were down 3.7 percent at C$44.49.

“This is a reasonably strong bid by Goldcorp, though with Eldorado still in the picture, there does remain the possibility that a bidding war may emerge,” said Paradigm Capital analyst Don MacLean, in a note to clients.

Gold consumption rose by more than a third in the second quarter of 2010 and is set to stay strong with India and China providing the main thrust.

Investment demand is also expected to be firm as uncertainty about the global economic outlook boosts the appeal of gold as a safe haven.

CERRO NEGRO

Goldcorp said Andean’s principal asset is its 100 percent owned Cerro Negro Gold project in the southern province of Santa Cruz in Argentina, which would add to its gold production pipeline.

With an estimated reserve of 2.54 million ounces, Cerro Negro’s owner are getting top dollar for the operation.

“With this project you can add ounces year after year after year, and therefore, add value for your shareholders,” said Goldcorp Chief Executive Chuck Jeannes in an interview.

He said new drilling at Cerro Negro had indicated significant additional resources.

“Goldcorp has been built on such tip-of-the-iceberg acquisitions,” Jeannes said. “We wouldn’t be surprised to see the indicated resource double in fairly short order.”

Goldcorp has identified Argentina as a key region for investment. The company already holds a 37.5 percent stake in Alumbrera, a large gold and copper mine in the northwestern part of the South American country.

While equity analysts put Andean’s fair price at C$6.50 to C$6.60 a share, in line with the Goldcorp offer, they added Kinross (K.TO: ), Yamana Gold (YRI.TO: ) and AngloGold Ashanti (ANGJ.J: ) are well-positioned to consider a bid.

Neither Goldcorp nor Eldorado disclosed whether a deal would add or cut earnings, but Goldcorp did say Cerro Negro would begin producing by late 2012.

Maison Placements analyst John Ing expressed some doubt over the production date, noting that a feasibility study, exploration and more drilling were needed before construction could begin.

“Goldcorp is stuck on a growth treadmill,” he said. “And the reality is that it needs production in order to maintain its growth.”

Andean is advised by BMO Capital Markets, Goldcorp by CIBC World Markets and Eldorado by GMP Securities.

The mining sector is leading the global M&A activity, which recorded $267 billion worth of deals in August, making it the biggest month since June 2009, Thomson Reuters data showed.

The materials sector has seen a 30 percent rise in deals with global miner BHP Billiton (BHP.AX: ) (BLT.L: ) leading the charge with a $39 billion offer for Canada’s Potash Corp (POT.TO: ).

(Additional reporting by Euan Rocha in Toronto, Nicolas Misculin in Buenos Aires, Krishna N. Das in Bangalore and Nick Trevethan in Singapore; Editing by Valerie Lee, Lincoln Feast and Peter Galloway)

Goldcorp makes $3.4 billion bid for Andean Resources