By Adrian Ash<\/p>\n
\nBullionVault<\/a><\/p>\n <\/em><\/p>\n \nThis year’s bumper gold-mining deals come as big discoveries have gone missing in gold… <\/em><\/p>\n \nWHATEVER’S LURKING<\/strong> in Andean Resource’s data room \u2013 opened to suitors for two years, but now closed<\/a> after GoldCorp trumped Eldorado’s US$3.3bn bid \u2013 it must be pretty spectacular.<\/p>\n \nBecause on published figures, and at current spot prices<\/a>, GoldCorp’s offer equals 74% of the gold and silver resources indicated and inferred at Cerro Negro<\/a>. Based on viable reserves alone, the bid is priced at 1.5 times proven and probable ounces!<\/p>\n \nThat suggests real confidence not only in the precious-metal bull market, but most spectacularly in Andean’s exploration projects.<\/p>\n \nSouthern Argentina certainly looks compared with the world’s better-developed but fast-ailing gold mining<\/a> sites. A marginal producer at the top of gold’s last long-run bull market, South America has since overtaken Australia, North America and South Africa, and now spits out twice as much gold per year (according to GFMS’s 2010 forecasts<\/a>) as the world’s single largest gold-mining nation, China. Extraction costs are also alluring, doubling since 2006 to around $350 per ounce (GFMS again) but undercutting North America’s average cash costs by well over $100 and slashing South Africa’s cost in half.<\/p>\n \nAs for the timing, 2010 has already overtaken full-year 2008 with record spending on gold mining<\/a> mergers and acquisition. The sector’s third-largest corporate action takeover of the year to date, GoldCorp’s agreed offer \u2013 which may still see revised bids from other suitors, according to the newswires \u2013 follows Newcrest’s US$8.4bn acquisition of fellow Australian firm Lihir in May, and last month’s $7bn purchase by Kinross of the 91% of Red Back Mining it didn’t already own.<\/p>\n \nThis size of takeover led the mining world table<\/a> in 2008, when precious-metal producers didn’t even figure in the top 10 deals, despite it being a bumper year for gold M&A. And as for last year, gold’s biggest takeover in 2009<\/a> was for the $1.7bn purchase of Sino Gold by Eldorado \u2013 Andean’s disappointed suitor today.<\/p>\n \nSo what about price? Well, Newcrest’s takeover of Lihir<\/a> in May was priced at just 22% of proven and probable reserves, equal to 12% of indicated and inferred resources \u2013 a real bargain compared to Kinross’s merger with Redback<\/a>. Even with spot gold trading near all-time highs, that cost nearly 25% of potential resources, equal to fully 38% of proven and probable ounces. Little wonder perhaps that ISS<\/a> on Friday called Kinross’ bid too rich; J.P.Morgan says Redback would needs to near-double its resources to make the offer worthwhile.<\/p>\n \nBut with gold mining firms bloated with cash and bleeding reserves as they continue to mine, could one-third (or so) of proven-and-probable ounces set a useful benchmark for acquisitive majors? Andean may be sitting on a further 4.2 million ounces of “potential” gold, reckons Credit Suisse’s Michael Slifirski<\/a>. In which case (and not forgetting South America’s low extraction costs), GoldCorp’s bid would fall to 35% of total resources at current prices.<\/p>\n \nTogether with the Kinross-Redback deal (and only if both complete), that might suggest a base level for M&A pricing in a world losing 4 million ounces per year<\/a> in new discoveries since 1980.<\/p>\n \nAdrian Ash<\/p>\n \nBullionVault<\/a><\/p>\n \nGold price chart, no delay<\/a> |\u00a0\u00a0 Buy gold online at live prices<\/a><\/p>\n \nFormerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash<\/strong> is the editor of Gold News<\/a> and head of research at BullionVault<\/a> \u2013 winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council<\/a> research body \u2013 where you can buy gold today<\/a> vaulted in Zurich on $3 spreads and 0.8% dealing fees.<\/p>\n