An Acquisition in Gold Country (AUY, XG, AU, GG, PAAS, CDE)

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Canadian gold miner Yamana Gold Inc. (NYSE: AUY) announced this morning that it is acquiring Canadian junior miner Extorre Gold Mines Ltd. (AMEX: XG) for a total of about $395 million. Yamana will pay Extorre shareholders $3.50 in cash plus 0.0467 of a Yamana share for each share of Extorre common stock. The price is a premium of 54% to Extorre’s 20-day volume weighted average price, and represents about 3% of Yamana’s pro-forma market cap.

Yamana’s CEO said that while the company plans to continue its focus on organic growth, the company would also look for “tuck-in acquisitions in mining-friendly and familiar jurisdictions that fit our other criteria including opportunity for organic growth, accelerated path to development and production and high return.” Extorre is just such an opportunity.

Extorre’s main development is taking place in the Deseado Massif in Argentina’s Patagonia province, a relatively unexplored gold and silver region. The area has attracted a number of junior miners and last year South Africa’s AngloGold Ashanti (NYSE: AU) took a 19.9% stake in Canadian junior Mariana Resources Ltd., which holds properties in the Deseado Massif. Goldcorp Inc. (NYSE: GG), Pan American Silver Corp. (NASDAQ: PAAS), and Coeur d’Alene Mines Corp. (NYSE: CDE) either have joint ventures or their own operations in the region.

Other junior miners in the region include Toronto-listed Mariana Resources, Minera Andes Inc., Minera IRL Ltd., Patagonia Gold plc, Mirasol Resources Ltd., and Argentex Mining Corp. It’s not a stretch to think that these companies have just become more attractive to some of the major gold mining firms.

In pre-market trading this morning, Yamana’s shares are down -2% at $15.70 in a 52-week range of $11.21-$18.16. Shares of Extorre are up 55.6% at $4.14 in a 52-week range of $2.15-15.42.

Paul Ausick

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