Speculation abounds that Canada’s largest gold producer Placer Dome (TSE) may be eyeing rival Corona (TSE) as a potential takeover candidate. Both companies have been making headlines lately as they bid for control of the high-profile Eskay Creek gold property owned 50/50 by Stikine Resources (TSE) and Prime Resources Group (VSE). The property is in northwestern British Columbia’s golden triangle near Stewart, B.C.
According to international mining analyst David Williamson, the relative value of Eskay Creek for a company of Placer Dome’s size is much less than that for Corona. Even if Placer Dome gets 100% of Stikine, it would only have 50% of the Eskay Creek gold deposit and Prime would retain the management contract, says Williamson.
“This would not suit Placer’s modus operandi — they are mine operators,” says Williamson.
“With their cash pile and borrowing capability, they could seek to tie up the whole of Eskay Creek by either bidding for Prime, at a suitably high price, or more likely bid for Corona.”
Last year saw another large Canadian gold miner LAC Minerals (TSE) buy a 65% stake in Bond International Gold (TSE) for a total of $379 million. Last summer also saw Amax (NYSE) embark on a bidding war with Noranda (TSE) for control of Falconbridge Ltd.
Placer Dome, with cash and short-term investments of more than $650 million, is well-positioned for a major new acquisition. Hit by slumping gold prices, the share price of Corona has fallen to $7.50 of late, as investors consider the uncertainty of the proposed Prime- Stikine restructuring outcome.
According to Rick Cohen, an analyst with BBN James Capel, Prime will likely disappear as the Eskay saga unfolds. He says Corona and Placer, either alone or together, will probably bid for control of Prime, which he estimates has a total value of $647, or about $12.18 per share on a fully diluted basis.
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