Editorial: Shuffling the deck

As many predicted in mid-year, mergers and acquisitions activity in the gold sector continues to be the name of the game as the global economy limps along to the end of the year.

• Mexican billionaire Carlos Slim, who often appears atop the various “World’s Richest Person” lists, looks to be redirecting into hard assets a tiny bit of the enormous wealth generated from rapacious cellphone billing rates in Mexico.

Reminiscent of Brazilian billionaire Eike Batista’s privately held EBX Group’s US$1.5-billion, all-cash purchase of Ventana Gold for its Colombian gold assets in early 2011, Slim’s Minera Frisco is buying gold mining assets in Mexico from Toronto-based AuRico Gold for a cool US$750 million in cash. The assets are the operationally problematic Ocampo gold-silver mine and the Venus and Los Jarros projects in Chihuahua state, plus a half stake in the Orion project in Nayarit state.

Mexico City-based Frisco, held about 80% by Slim, was spun out of his holding company Grupo Carso early last year, and it already represents Slim’s third-largest enterprise after his cellphone company America Movil and financial services company Grupo Financiero Inbursa.

Frisco is emerging as a growing presence in Mexico’s gold sector, which has traditionally been overshadowed by the country’s silver and, more recently, copper sectors. Last year Frisco shelled out US$440 million in shares to boost its stake to 90% in Minera Tayahua, which operates the El Concheno gold-silver mine in Chihuahua. With Concheno, Ocampo and Venus all nearby, Frisco is counting on meaningful synergies between the assets to lower total operating costs.

By selling Ocampo, AuRico has cut its last ties with the old Gammon Lake Resources assets. AuRico’s chief financial officer Scott Perry replaced Rene Marion as CEO after his resignation for health reasons in July, and he has been rapidly tidying up the junior producer’s books ever since. The company is promising to return some funds to shareholders in the form of a dividend or a share buyback, or a combination of the two.

Days before Perry became CEO, AuRico had closed the sale of its El Cubo silver-gold mine in Guanajuato state in Mexico and its Guadalupe y Calvo silver-gold exploration project in Chihuahua

to Endeavour Silver for US$100 million in cash and US$100 million in shares, numbering 11 million. (Those shares were all sold for US$97 million in mid-October.)

 

Shareholders are loving AuRico’s new approach to fiscal discipline, and drove the shares up more than 20% in response to the Ocampo sale.

 

• The other significant gold deal of the week was the bid by Mexico-focused mine developer Argonaut Gold for Ontario-focused junior Prodigy Gold. The all-share offer represents $1.08 per Prodigy shares, or a sweet 54% premium, and values Prodigy at $314 million.

Vancouver-based Prodigy really hit the radar screens of the world’s gold industry in late August 2012. That’s when it announced it had increased by 55%, to an impressive 6.1 million oz. gold, the resource at its flagship Magino project near Wawa, Ont., by delineating an indicated resource of 5.8 million oz. gold in 203 million tonnes grading 0.89 gram gold per tonne, plus an inferred 300,164 oz. gold in 10.3 million tonnes at 0.91 gram gold, at a cut-off grade of 0.35 gram per tonne gold.

  • Venezuelan President Hugo Chavez has been given another strong endorsement of his “Bolivarian” socialist revolution, with his clear win in the country’s presidential election on Oct. 7.

Chavez was re-elected to his third consecutive six-year term, defeating pro-business candidate Henrique Capriles, a charismatic, 40-year-old lawyer and former mayor who most recently served as governor of Miranda state.

Chavez’s win pretty much puts an end to any remnant hopes North American and South African miners had that there was any kind of role they could play in developing the country’s rich mineral potential, after they were effectively kicked out of the country in the mid-2000s.

For assistance in exploiting Venezuela’s resources, especially its oil, Chavez has instead turned to bad actors on the world stage such as the authoritarian regimes in China, Iran and Russia, and has used his government’s near total control of oil production in the country to fund other budding socialist national governments in Latin America.