OceanaGold Corp. agreed to buy Romarco Minerals Inc. in a deal worth C$856 million ($660 million) to gain control of its bullion project in South Carolina. The buyer’s shares fell the most in six years.
OceanaGold will pay 0.241 of its shares for every one in Romarco, the Melbourne-based company said in a statement on Thursday. That values Romarco shares at C$0.68, a 73 percent premium on the July 29 closing price, OceanaGold said.
A decline in the price of gold, which last week fell to the lowest since February 2010, is spurring deals after valuations tumbled. OceanaGold said in April it was seeking to buy more assets after agreeing to pay $101 million for Newmont Mining Corp.’s Waihi mine in New Zealand.
OceanaGold slumped as much as 17 percent in Sydney, the most since 2009, and was at A$2.37 at 1:58 p.m., down 15 percent.
Investors are questioning the value of adding Romarco’s Haile mine project, according to UBS Group AG. “It appears they are paying a significant premium,” Sydney-based UBS analyst Jo Battershill said by phone Friday. “It makes it difficult to see how they can add genuine value in the current gold price environment.”
After tumbling 47 percent in the past year, the BI Global Gold Mining Competitive Peers Index trades just below its members’ average book value, compared with as high as 2.4 times four years ago, according to data compiled by Bloomberg.
The combined producer will be able to bring down costs further and post “attractive margins” even with prices hovering around $1,100, OceanaGold Chief Executive Officer Mick Wilkes said on a conference call. The company is “fully financed” to undertake Romarco’s capital projects, Wilkes said.
After completion, OceanaGold shareholders will own about 51 percent and Romarco investors about 49 percent. Adding the Haile project, which is targeting first production in 2017, will boost the combined company’s annual gold output to about 540,000 ounces.
“The developing companies are attractively valued in the context of the market,” Andrew Kaip, a Toronto-based analyst with BMO Capital Markets, said by phone. “You can buy reserve ounces and pre-development names for cheaper than you can actually find them.”