Globe and Mail: Now every miner is in play


By Andy Hoffman
The Globe and Mail, Toronto
Thursday, August 31, 2006

Suddenly Clive Johnson is very popular. Five years ago, when the price of gold was below $300 (U.S.) an ounce, his phone didn't ring for months.

Thursday, it wouldn't stop.

The head of Bema Gold Corp. was inundated with calls from investment bankers pitching deals.

Some saw Bema, a fast-growing gold miner with mines and projects in Russia, Chile and South Africa as a target, perhaps for Kinross Gold Corp., a larger rival. Others talked about the same players teaming up, but envisaged Vancouver-based Bema as a buyer.

"I don't think you can rule anything out in this kind of market. You've got the metal prices, the share prices that can justify acquisitions and gold executives with a lot of pressure to grow," Mr. Johnson said.

Welcome to the latest round of gold sector consolidation where few things are clear other than the fact that the starting gun was sounded Thursday when Goldcorp Inc. unveiled an $8.6-billion bid for Glamis Gold Ltd.

The bold attempt to create a $20-billion bullion powerhouse is expected to incite a wave of merger activity in the sector, with Toronto's Kinross positioned as the prime candidate to lead the consolidation, bankers and analysts predict.

"I think it's inevitable that we're going to see more consolidation in the future. This is a very capital-intensive business and that's one of the reasons for the [Goldcorp and Glamis] transaction," said Michael Fowler, an analyst with Desjardins Securities.

Several deals involving other gold sector players were already being considered before Thursday's blockbuster bid to create the world's third-largest gold producer was announced, said an industry source, but executives have been "afraid to pull the trigger."

Now that Goldcorp and Glamis are set to hook up, many of those same executives were calling advisers Thursday, anxious to speed up the process and get deals done.

"Every time you see one of these deals, everyone says, 'OK, let's hurry this up,'" the source said.

Kinross is being touted as a key player in the coming consolidation according to several observers. With a market capitalization of $5.3-billion (Canadian), the Toronto-based company will become Canada's third-largest gold miner if Goldcorp's bid for Glamis succeeds.

Kinross had been hampered by a messy accounting review related to a three-way merger in 2003. The probe left the company hamstrung when the price of gold took off in 2004, unable to make acquisitions or fund new development projects.

Now armed with a cleaned-up balance sheet and a new chief executive officer, former investment banker Tye Burt, many expect Kinross to start buying again. Possible targets include Meridian Gold Inc., Iamgold Corp., and Agnico-Eagle Mines Ltd.

"Kinross is going to have to do some kind of transaction because they are rapidly getting outpaced here," said an investment banker.

Many have cited Bema as a possible Kinross purchase, but Mr. Fowler said the deal could be reversed, with Bema of Vancouver taking over Kinross with stock. Bema's market capitalization is $2.7-billion and its shares have gained 75 per cent so far this year. Mr. Johnson said several miners have already signed confidentiality agreements to look over Bema's books.

Robert Cohen, who manages the Dynamic Precious Metals Fund, said Goldcorp is also likely to continue its acquisitive ways once it digests this deal.

"The combined Goldcorp and Glamis are one or two transactions away from surpassing Newmont Mining Corp.," the world's second-largest gold producer. "They could [bid for] Agnico or Meridian or both," Mr. Cohen said.

Agnico-Eagle shares gained 7.4 per cent on the Toronto Stock Exchange Thursday. Meridian Gold climbed 7.7 per cent and Gabriel Resources Ltd. shares added almost 6 per cent as investors bet on who might be the next takeover candidate. "Everyone's trying to figure out what happens next," Mr. Johnson said.

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