Yamana proposes three-way deal

In an attempt to build its strength in South America, Yamana Gold (YRI-T, AUY-N, YAU-L) has made an agreement to buy Northern Orion Resources (NNO-T, NTO-A) on the condition that it can acquire two-thirds of Meridian Gold (MNG-T, MDG-N).

Part of Yamanas growth strategy has been through acquisition, but until now, friendly has been the name of the game. President and CEO Peter Marrone says he wouldnt call Yamanas move to acquire Meridian hostile, but instead, unsolicited.

We can make this very friendly, Marrone said in a conference call today. Im more than happy to engage in discussions with Meridian.

Marrone says he has communicated with Meridian, though a formal offer has not been delivered to the company. Yamana has 30 days to make the offer.

Meridian shareholders would receive 2.235 of a Yamana share plus $3.15 in cash, for a total of $32.25 per share, a 23% premium over Meridians closing share price on June 27.

Northern Orion shareholders would receive 0.543 of a Yamana share, or a value of $7.07 per share, which is a 21.3% premium over Northern Orions closing share price on June 27.

Northern Orion has agreed to contribute US$200 million of the US$300 million cash component of the Meridian offer.

The combined company would have 9 operating mines and a pipeline of 6 development projects.

The transaction would see Yamana increase its annual gold production to more than 1.4 million oz. gold by 2009 from a combined base in 2006 of about 660,000 oz. It has been Yamanas goal to reach the 1-million-oz. mark by 2009.

Acquiring both companies will allow Yamana to maintain its current gold-copper production ratio. Acquiring only Northern Orion would increase the companys copper component significantly.

This transaction does not increase our base metal exposure, Marrone says. It will be static for now and reduce over time.

Catherine Gignac, a mining analyst with Wellington West, says putting a strong focus on gold may not be the way to success.P>Gignac points out that gold stocks have not done well in recent years.

They could get better returns by diversifying, she says. Stocks have been terrible diversification works for BHP Billiton and CVRD.