Yamana looks to get bigger in South America

In an effort to become a more dominant gold play in South America, Yamana Gold (YRI-T, AUY-X, YAU-L) has announced a takeover bid for Viceroy Exploration (VYE-T, XVE-X).

If completed, the deal would push the Toronto-based company into the upper echelon of mid-tier producers, with a production target of 1 million oz. of gold by 2008.

In Toronto on Aug. 17 Yamana shares were off nearly 5%, or 55 to $10.65 on roughly 5.5 million shares. Viceroy shares rose towards the premium being offered by Yamana, gaining roughly 20% or $1.74 to $10.39 on roughly 4.6 million shares.

Based on closing prices from Aug. 16, Yamana’s all share offer represents a 25.5% premium as Yamana is offering Viceroy shareholders 0.97 of a Yamana share for every Viceroy share held. Viceroy’s board of directors is unanimously recommending the deal.

In a conference call held on Aug. 17 Yamana’s president and chief executive, Peter Marrone said the drivers behind the acquisition were value, resource potential, regional potential, and strategic benefits gained by diversifying into another country and increasing its copper exposure.

Patrick Downey, Viceroy’s president and chief executive says the deal is appealing to Viceroy in that it will gain Yamana’s expertise towards building its flagship exploration property Gualcamayo– into a producing mine.

“We were impressed by Yamana’s assets and more importantly by its people,” Downey said on the call. “We were impressed with it taking two mines and building them with its own management, on time and on budget.”

Marrone emphasized the eagerness of both company’s to work together.

“Pat (Downey) didn’t have to do a deal. We did something that was the right thing to do,” said Marrone, who went on to explain the context of Viceroy’s receptiveness.

“We said come visit our assets in Brazil, and my sense is (Downey) found a lot of value there that really wasn’t recognized,” Marrone said.

Already boasting one of the largest gold portfolios in Brazil, Yamana is looking to spread its asset base by acquiring and building Gualcamayo in Argentina’s San Juan province.

Downey said that Gualcamayo is conducive to heap leach extraction, and estimated the capital costs of the completed mill to be under $100 million.

The combined company would have a total measured and indicated resources of approximately 11.8 million oz. of gold plus inferred resources of roughly 6.9 million oz. And that’s not counting Gualcamayo’s resource updated, which is due at the end of August.

Proven and probable gold reserves for the new company would be roughly 7.2 million oz. In addition, proven and probable copper reserves would move to roughly 2.3 billion lbs.