Goldcorp and Glamis table merger plans

Vancouver – The latest in a series of mega-mining-mergers sees Goldcorp (G-T, GG-N) looking to boost its ranking amongst the world’s top gold companies through an agreement to merge with mid-tier producer Glamis Gold (GLG-T, GLG-N) in a deal to create a new US$21-billion company.

Shareholders of Reno-based Glamis will receive 1.69 shares of Goldcorp for each of their shares, giving a valuation of US$51.49 based on Goldcorp’s August 30th closing price, a 32.7% premium on Glamis’ TSX closing price on that day. The proposed transaction, approved by both boards, is expected to close in November subject to regulatory considerations and at least two-thirds of Glamis shareholders voting in favour.

The deal values Glamis at about US$8.6 billion given its 166.6 million shares outstanding. Based on Glamis’ proven and probable reserves of about 28.4 million ozs. of gold equivalent (15.7 million ozs. of gold and 616.9 million ozs. of silver), Goldcorp is buying “ounces in the ground” at about US$300 apiece. Utilizing the measured and indicated resource of more that 40 million contained ozs. of gold equivalent, the acquisition cost comes in at about US$213 per oz.

Earlier this year, Glamis acquired Vancouver-based Western Silver in a US$1-billion merger to obtain the large Peasquito silver-gold deposit in central Mexico. Subsequent studies have boosted the project’s reserves (gold up 100% and silver up 85%) with the deposit now comprising about three-quarters of Glamis’ reserve base.

In the merger agreement Glamis agrees to pay a US$215-million break fee to Goldcorp under certain circumstances, which also retains a right to match any competing offers. Upon successful completion of the combination, Goldcorp and Glamis shareholders will hold 60% and 40% of the new Goldcorp respectively, with the companies holding board representation on that same ratio.

“From the Goldcorp side, the biggest drivers for us was the value we saw in Glamis; this transaction doubles our reserves and resources,” stated Goldcorp president and CEO Ian Telfer in describing his company’s motivation to take on another acquisition.

Glamis produced just over 286,000 ozs. of gold in the first six months of this year from El Sauzal in Mexico, Marlin in Guatemala, its 66.7%-interest of Marigold in Nevada and the San Martin mine in Honduras at a total cash of US$196 per oz. On its development stream, a revised feasibility study at Peasquito is also evaluating doubling the proposed 50,000-tonne-per-day throughput with full production expected by late-2009.

Glamis president and CEO Kevin McArthur reviewed the optimization potential of the merger, “we believe synergies between the two companies will eventually amount to about $25 million per year, in addition to management and people synergies.”

In the first half of this year Goldcorp produced almost 674,000 ozs. of gold from its Red Lake, Porcupine (51%-interest) and Musselwhite (68%-interest) mines in Canada, Alumbrera (37.5%-interest) in Argentina, Luisman in Mexico, Amapari in Brazil, Peak in Australia, Wharf in South Dakota and its 50% of La Coipa in Chile. Total cash costs were negative US$108 per oz. due to the large copper by-product credit from Alumbrera. The company also holds a majority interest in Silver Wheaton (SLW-T, SLW-N).

Additionally, Goldcorp recently closed a $1.6-billion acquisition of certain Placer Dome assets midway through its second quarter under an agreement struck with Barrick Gold (ABX-T, ABX-N) that successfully acquired Placer in a $10-billion takeover deal.

The combined company will become a significant low-cost and un-hedged gold producer with pro-forma annual bullion output approaching 3 million ozs. plus proven and probable reserves of 41.1 million ozs. of contained gold. The new Goldcorp will rise to third position amongst the senior gold producers, based on market capitalizations, after Barrick Gold and Newmont Mining (NMC-T, NEM-N).

Many Goldcorp shareholders were not enamoured with the deal, viewed as dilutive, and sold off a good portion of their shares to push down the stock price by about 15% to the $30.50-level on very high TSX trading volume. Alternatively, Glamis shares gained 18% to close up $7.68 at the $50.70-level on TSX trading.