Goldcorp-Glamis Supermerger Shakes up Old Boy Club
By Karl Heilman
31 Aug 2006 at 12:15 PM EDT
St. LOUIS (ResourceInvestor.com) -- Goldcorp [NYSE:GG; TSX:G] and Glamis [NYSE:GLG; TSX:GLG] today announced an agreement to merge that would create a new $21.3 billion gold company, ranked third in the world by market capitalization behind $28.9 billion Barrick [NYSE:ABX; TSX:ABX] and $23 billion Newmont [NYSE:NEM].
Commenting on a deal related conference call earlier today, Goldcorp CEO, Ian Telfer, said that both companies were approached by an investment banker who showed that the value of Glamis was being created faster than Goldcorp and the markets realized. Resource Investor illustrates this in its tabulation of the deal which shows how Glamis' resource base was dramatically under-priced even though its production was overpriced.
"We believe this will be the world's premier gold mining company…we are a senior in all aspects of that word going forward," Telfer said.
Glamis shareholders are slated to receive 1.69 shares of Goldcorp for each Glamis share held, with a per share value of $51.49 and a Glamis company value of $8.6 billion. The price represents a 30% premium from the August 30 close of Glamis on the in New York.
Telfer said that it was knowledge of Glamis' Penesquito asset - which was acquired with Western Silver - the quality of Glamis personnel, and relative stock valuations by analysts and the markets that led to the premium.
The deal will create 290 million new shares of Goldcorp stock.Glamis shareholders will own 39.8% of the new company while current Goldcorp shareholders will own a 60.2% stake.
"We're putting together a very strong, committed management team, for gold investors this of course represents the best of both worlds," Glamis President and CEO, Kevin McAruthur, said during the call.
McArthur is designated to become the CEO of the new company and Telfer will become the chairman.
The combined company, which will be retain the Goldcorp brand, will have reported proven and probable reserves of 41.1 million gold ounces, and insert silver ounces and other metals.
"This transaction merges the talents of the two top performing gold mining companies over the past five years. We will leverage this talent to deliver on a very exciting building and growth program for the company's long-term future. This transaction provides tremendous value to Glamis shareholders," McAruthur said in a company press release.
Goldcorp, North America's third largest gold producer and one of the world's lowest cost producers, has operations in Canada, the United States, Mexico, Argentina, Brazil and Australia. The company also owns a controlling stake in Silver Wheaton [TSX:SLW].
The primary rationale behind Goldcorp's appetite for Glamis is the Penasquito project located in Zacatecas, Mexico.
Glamis completed its merger with Western Silver in May 2006, giving the company control over the Penasquito site. The area is one of the largest undeveloped metals deposits throughout the Americas and consists of two deposits: Penasco and Chile Colorado.
According to company reports, the sites have the necessary transport infrastructure access, along with availability of skilled labor and smelters.
There are roughly 5 million stated ounces of gold reserves and 300 million ounces of silver at the Penasquito site. The development of the Penasco project catapulted Western Silver from an interesting prospect to an essential portfolio stock, and it was finally rewarded with the Glamis Gold purchase.
It's suggested that the two companies decided to act in June, when Glamis doubled its proven and probable gold reserves from 4.93 million ounces, to 9.98 million ounces, increased its silver reserves 86% to 575 million ounces and doubled its lead and zinc reserves to 1.67 million tonnes and 3.62 million tones. The silver reserves which Glamis holds are greater than any other North American producer's.
"The thing that's changed since Glamis and Goldcorp bumped into each other a year and a half ago has been Penasquito and the Reserves they've found there. I saw a statistic that said if you take all the metal in Penasquito and turn it into the gold equivalent there are 25 million proven and probable gold reserves," Telfer said.
Telfer said that the company prefers "to look for gold assets," and that precious metals to base metals focus 80:20; while overall gold is 70:30 to base metals.
"We believe the new Goldcorp will be the first choice for investors. The competition will be unmatched in its combination of producing long-term mining assets, development opportunities and exploration upsides...and not to mention the low-cash cost...that the company will have going for them."
In late-afternoon trading, Glamis shares were trading up 19% or $7.36 to $46.22 while Goldcorp shares were trading down 9% or $2.76 to $27.71 on the NYSE.
