We are not on the lsit but interesting to see that M&A talk is heating up again in the sector. Could be a sign the bottom is in.

Possible M&A Candidates for Barrick Gold, Newmont Mining and Goldcorp

The following research is a summary of a Blackmont Capital report entitled ‘The Stage is Set for M&A in the Gold and Silver Sector’ that was published on September 22, 2008.

Barrick Gold (ABX: TSX)



Rationale: Barrick requires large near term projects that might aid it in maintaining its current levels of production, which total 7.83 million ounces in 2008. Barrick currently has a strong presence in Nevada, Australia, Peru, Chile and Argentina. The company has the “balance sheet, cash flow and multiple to buy virtually anything they want. Kinross makes the most sense as it allows them to wait until Ecuador mining law is passed.”

1. Kinross Gold (K: TSX) – by acquiring Kinross Gold, which itself is currently in the process of acquiring Aurelian Resources (ARU: TSX) Barrick could increase its growth profile through large projects such as Kupol in Russia, Paracatu in Brazil and now Aurelian’s Fruta Del Norte (FDN) project in Ecuador. Barrick is already familiar with workings in Russia though its 34% ownership stake in Highland Gold Mining, which is Russia’s fourth largest gold producer. Additionally, Barrick could further consolidate ownership of the Round Mountain and Cerro Casale projects, both of which are currently joint ventures with Kinross Gold. Lastly, acquiring Kinross would allow Kinross CEO Tye Burt to take over the empty CEO spot at Barrick.

2. Detour Gold (DGC: TSX) – the acquisition of Detour Gold, would provide Barrick with a 13.2 million ounce deposit in politically benign Ontario, Canada. With a possible start up by 2012, the only hindrance in Barrick’s path would be Detour’s largest shareholder, PDX Resources (PDX: TSX) that current owns about 40% of Detour.

3. Silver Standard Resources (SSO: TSX) – the interest in Silver Standard Resources would stem from the company’s world class Pitarrilla project in Mexico, the potentially large Snowfield gold project in British Columbia and the high grade San Luis project in Peru. A suitable strategy for Barrick would be to keep the gold projects while divesting the silver projects together with Pascua Lama.

Newmont Mining (NEM: NYSE)



Rationale: Newmont requires large near term projects that might aid it in maintaining its current levels of production, which total 5.15 million ounces in 2008. Newmont currently has a strong presence in Nevada, Australia, Peru, West Africa and Canadian North. Since some of Newmont’s “largest projects carry high political risk so the acquisition of Yamana or Osisko is likely the safer bet.”

1. Yamana Gold (YRI: TSX) - the acquisition of Yamana would add growth with low political risk through large, low cost projects such as El Penon, which is located in Chile and Chapada, which is located in Brazil. The difference in multiples, according to analyst Richard Gray, “(NEM at 1.5x NAV and 15x CF; YRI at 0.8x NAV and 7x CF) would make this a highly accretive acquisition for Newmont.”

2. Osisko Exploration (OSK: TSX) - the acquisition of Osisko, would provide Newmont with a large 8.4 million ounce deposit in mining friendly Quebec. Something of note, Osisko recently sold 8 million shares to a “strategic investor.”

3. Gabriel Resources (GBU: TSX) – with the upcoming national elections in Romania, victory for the right candidate might provide the green light for the development of the Rosia Montana project, that boasts 14.6 million ounces of gold. Not only does Newmont already own 19.9% of Gabriel but on a valuation basis, this acquisition would be “massively accretive on EV/oz basis.”

Goldcorp (G: TSX)

Rationale: Goldorp is in the need of longer term production to add to its current growth profile. The company has a strong presence in Canada and Mexico.



1. Agnico Eagle Mines (AEM: TSX) – a Barrick-Kinross or Newmont-Yamana combination might necessitate Goldcorp to become large as well. Agnico-Eagle is a logical candidate as both companies have primarily North American asset bases, similar management styles and a marriage between the two, would result in a “top quality, blue chip senior producer.”

2. Terrane Metals (TRX: TSX-V) – Goldcorp has provided Terrane with a $40 million loan that can be converted to a 58% interest in the Mt. Milligan copper-gold project in central British Columbia. Mt. Milligan has a measured and indicated mineral resource of 590.8 million tonnes averaging 0.193% Cu and 0.352 g/t Au containing 2.52 billion lb copper and 6.70 million oz gold. The proven and probable mineral reserve totals 333.7 million tonnes averaging 0.217% Cu and 0.428 g/t Au containing 1.60 billion lb copper and 4.59 million oz gold. Gray calculates that the massive cap-ex requirements of the Mt. Milligan being approximately $917 million works out to only 7 months of cash flow for Goldcorp.

3. Canplats Resources (CPQ: TSX) – with recent drill results suggesting that Canplats’ Camino Rojo project in Mexico (which incidentally is located 50 km from Goldcorp’s Penasquito project) is “shaping up to be at least comparable to Penasquito in terms of foot print and grade,” it would make sense for Goldcorp to acquire Canplats.