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Yamana Gold Inc. said Monday it will pay $395-million for Extorre Gold Mines Ltd., the owner of a gold and silver property in Argentina that has run into development difficulties.
Extorre’s stock price has been so battered by global market uncertainty and local politics that the company can no longer develop the property itself with solid returns.
“Extorre’s share price has suffered dramatically over the past few months due to a number of factors including: global political and economic uncertainty impacting credit markets; a broad selloff of all junior non-producing gold companies; concerns with respect to share dilution arising from a decision to develop the Cerro Moro project; and a series of events that have raised the perceived investment risk in Argentina,” Extorre co-chairman Yale Simpson said in announcing the deal with Yamana.
The deal highlights a dichotomy in the mining industry currently. Well-capitalized companies with projects up and running can readily exploit opportunities at a time when development companies have seen their access to financing eroded amid political uncertainty and weakening commodity markets.
Moreover, the Extorre acquisition – to be paid mostly in cash – highlights the impact of a growing disconnect between gold prices near record highs, and rock-bottom valuations for the companies that mine them. Companies like Yamana that are already producing gold are cash-rich and have easy access to credit – as much as $1.6-billion in cash and credit in Yamana’s case – while companies like Extorre struggle to finance development on reasonable terms.
“Management and the board of directors of Extorre diligently examined all of the available options to finance the Cerro Moro project to production, but given current market conditions, whatever financing mix was chosen, the result would be a serious erosion of the project returns,” Mr. Simpson said.
At the equivalent of $4.26 a share, Yamana’s offer was 54-per-cent higher than Extorre’s average price over the last 20 days and 18-per-cent more than the 60-day average.
On the other hand, it was barely a shadow of the nearly $15 a share it was trading at about a year ago, before it was beaten up by political uncertainty in Argentina and economic turbulence abroad.
As recently as March, Extorre shares were trading at nearly $8, just before Argentine President Cristina Fernandez ordered the expropriation of partially state-owned energy company YPF SA from Spain’s Repsol YPF, the latest in a series of populist moves since her election to a second term by a landslide in October.
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/report-on-business/yamana-gold-snaps-up-extorre-for-395-million/article4300135/