Yamana Gold Inc., Canada’s third-largest producer of the metal by market value, agreed to buy Extorre Gold Mines Ltd. for about C$414 million ($404 million) to gain control of the Cerro Moro project in Argentina.
Extorre shareholders will receive C$3.50 in cash and 0.0467 percent of a share of Yamana, Vancouver-based Extorre said in a statement today. That’s an implied deal price of C$4.26 a share and 54 percent more than Extorre’s 20-day volume-weighted average price, according to the statement.
Extorre said it pursued a sale after a decline in gold-mining shares, economic uncertainty and the situation in Argentina meant financing Cerro Moro on its own became too expensive. Extorre slid 66 percent in the year through June 15 amid investor concern about foreign resources companies in Argentina after the country seized control of oil producer YPF SA from Spain’s Repsol YPF SA.
“The deal is being done at a very attractive price, which has been made possible by sector valuations and the recent rise” in political risk in Argentina, Steven Green, a Toronto-based analyst at TD Securities Inc., said in a note. The acquisition “makes a lot of sense from Yamana’s perspective, adding a high-quality project opportunistically.”
Extorre rose 68 percent to C$4.27 at the close in Toronto. Yamana increased 2.4 percent to C$16.75.
Yamana has the operational experience and financial strength to develop the gold and silver project, which is located in Argentina’s Santa Cruz province, Extorre said.
The deal “is a relatively small transaction in that it represents only 3 percent of Yamana’s market capitalization,” Toronto-based Yamana’s Chief Executive Officer Peter Marrone said in a separate statement. Still, it could eventually deliver more than 10 percent of the company’s so-called gold-equivalent production, he said.
Yamana’s 2012 production will be 1.2 million to 1.3 million gold-equivalent ounces, a measure that includes silver output, it said May 1. Output may rise to about 1.75 million ounces by 2014, it said at the time.
Yamana also said today it approved an 18 percent increase in its quarterly dividend to 6.5 cents a share.
There have been about $2 billion of takeovers of gold companies valued at $100 million or more announced this year, with an average premium of 41 percent, according to data compiled by Bloomberg. There were about $10.4 billion of deals in the same period last year, the data show.
The Extorre takeover agreement includes a C$15 million breakup fee. Extorre has agreed not to solicit other offers.
Yamana’s financial advisers on the deal were Barclays Capital and CIBC World Markets Inc. and its legal advisers were Cassels Brock and Blackwell LLP. Extorre was advised by Canaccord Genuity Corp. and law firm Gowling Lafleur Henderson LLP.