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*** North American Gold Mining Industry Abuzz ***

North American Gold Mining Industry Abuzz

Friday May 28, 4:06 pm ET
By Steve James

NEW YORK (Reuters) - The North American gold mining industry was abuzz on Friday over a pair of takeover bids that some analysts believe are a prelude to further consolidation.
"We certainly expect to see more, especially the smaller miners, who could become more attractive," said Chip Hanlon, chief operating officer and U.S. strategist for Euro Pacific Capital, a $300 million fund with approximately 10 percent exposure to precious metals.

"Everybody is vulnerable, except the big companies," said Victor Flores, a gold analyst with HSBC Securities. "Everybody has got to be a potential target, or they can throw around a lot of paper and become a predator."

They were reacting to a flurry of activity late on Thursday, when two Canadian mining firms due to merge next month received separate unsolicited takeover offers from two U.S.-based miners looking to break up the planned marriage.

Idaho-based Coeur d'Alene Mines Corp. (NYSE:CDE - News) offered $1.7 billion in stock and cash to buy mid-sized gold producer Wheaton River Minerals Ltd. (Toronto:WRM.TO - News; AMEX:WHT - News), which had agreed in March to an offer from rival Iamgold Corp. (AMEX:IAG - News; Toronto:IMG (News - Websites) .TO - News) to create one of the world's 10 biggest gold miners.

And Denver-based Golden Star Resources Ltd. (AMEX:GSS - News; Toronto:GSC.TO - News) launched an all-share bid worth about $884 million for Toronto-based Iamgold.

"Merger activity usually accompanies a bull market and we believe we are entering a long-term bull market for miners," said Hanlon. "As their shares move higher, it becomes like currency with which to make acquisitions."

Noting that one of Thursday's bids was an all-stock deal and the other was for stock and cash, he said a stronger stock market made it easier for companies to make acquisitions.

"Using stock is probably what we will see. As stocks come to life, it adds to the increase in merger activity.

"If you want to grow you can either spend a whole bunch of capital expanding and exploring, or you can find someone who is already sitting on it (gold deposits)," said Hanlon.

He said that in a merger-focused environment, he saw giants like Newmont Mining Corp. (NYSE:NEM - News; Toronto:NMC.TO - News) and Barrick Gold Corp. (Toronto:ABX.TO - News) looking to make acquisitions.

Frank Holmes, chairman and chief executive of U.S. Global Investors, a fund which also has a number of mining company stocks, including Wheaton River and Iamgold shares, agreed.

"Sure, there's definitely consolidation. The smarter companies are saying 'we have got to acquire assets.' It's a lot cheaper to buy someone else than to lay out capital for (mineral) discovery," he said.

"(But) it's intellectual capital, besides assets in the ground that you have to bet on. Combining intellectual capital is the way to fast-track a company's growth," said Holmes.

Flores was less enthusiastic. "This industry has already had a fair amount of consolidation and created some pretty big companies like Newmont and Barrick. Now there's a scramble among mid-tier players to gain critical mass.

"I don't see it as the same thing, though. The others were founded on spectacular assets. What you are seeing now is small assets being cobbled together to make something larger that may not stand the test of time."

Flores said the market supports such mergers because it believes "bigger is better.

"They think they can enhance value by taking two small companies and putting them together. I could take 25 companies and call it the 'new Newmont,' but who would still be around in five years? That's the real test."

Despite several mergers since the mid-1990s, the gold industry remains very fragmented for a sector with a total market value of about $100 billion for hundreds of companies. In fact, two of North America's biggest producers said earlier this month they expected more industry consolidation.

Jay Taylor, chief executive of Placer Dome Inc. (Toronto:PDG.TO - News), North America's No. 3 gold producer, said consolidation would make the industry healthier. His company is actively looking at more acquisitions, he said, to follow the $700 million takeover of Australia's AurionGold in 2002.

And Wayne Murdy, chief executive of Newmont, also told reporters that consolidation would benefit shareholders.

http://biz.yahoo.com/rb/040528/minerals_gold_consolidation_1.html