SAN FRANCISCO (MarketWatch) — Meridian Gold Inc.’s board plans to accept a richer offer from Yamana Gold Inc., both companies said Monday, ending months of merger talks between the two gold producers on creating a company that would mine more than 1 million ounces of the precious metal every year, as well as silver and copper.
Toronto-based Yamana Gold
(YRI)(YAU) said it had increased its cash portion by another 50 cents to C$7 a share, while continuing to offer 2.235 shares of Yamana for each Meridian share. Yamana’s new offer amounts to C$34.48 a share based on early Monday trades, or C$3.5 billion ($3.5 billion).
The board of Reno, Nev.-based Meridian Gold, which has previously resisted Yamana Gold’s bid, changed its tune Monday and recommended shareholders accept the offer.
“We strongly support this deal,” Meridian Gold
CEO Ed Dowling told investors on a conference call.
Yamana said the new offer represents a spot premium of 38% based on the closing prices of Yamana and Meridian shares June 27, the date of the company’s original proposal. In addition, Yamana extended the offer to midnight Toronto time Oct. 12. Yamana also said the terms of its agreement with Northern Orion remains unchanged.
Yamana Gold’s U.S.-listed shares closed down 3.5%. Meridian Gold’s shares lost 2% in New York trading.
The deal amounts to a three-way merger, since Yamana is in the midst of acquiring Canada’s Northern Orion (NNO)
a mid-tier copper and gold producer. Yamana and Northern Orion announced their merger on the same day Yamana made its unsolicited bid to Meridian.
The combined company will deliver gold production increasing to a minimum of 1.5 million ounces per year by 2009.
Getting over that one million ounces mark is key to attracting institutional investors, says Frank Holmes, chief investment officer for U.S. Global Investors
a fund company that owns shares in all three mining companies. The acquisition also gives Yamana more low-cost production assets, like Meridian’s El Peñón gold and silver mine in northern Chile, said Holmes.
“It’s a great deal for Yamana, and it positions the company to grow,” he said in a phone interview from the Denver Gold Forum.
The tussle over Meridian Gold underscores the value producers place on assets as gold prices top $700 an ounce.
Overnight Monday, Australian gold producer BHP Billiton (BHP) climbed to a record high in Sydney on a report it was about to announce a huge gold resource at its Olympic Dam mine in Australian. See full story.
But even if gold or other metal prices tumble, executives for Meridian and Yamana said, the deal should still make sense.
“Our larger and more dominant mines are low cost,” said Yamana CEO Peter Marrone in an interview, also from the Denver Gold Forum.
Yamana’s flagship Chapada mine in Brazil spends about 70 cents for every pound of copper it mines, and $200 for every ounce of gold, he said. On Monday, December copper increased 1.5%, to close at $3.645 a pound, while gold climbed 40 cents to close at $739.30 an ounce.
Meridian, for its part, says if silver was worth nothing — it’s now trading at about $13.60 an ounce — it would still make money as long as gold was worth at least $200 an ounce.
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