B2Gold’s Nicaragua La Libertad Mine.
A small Vancouver miner has struck the first major gold deal in months, marking what may be the start of a new wave of buying in the sector as bullion prices rise within reach of record highs from a year ago.
B2Gold Corp., which prides itself on mining for gold where others do not, said on Wednesday that it reached a $1.1-billion all-stock deal to acquire CGA Mining Ltd., owner of the largest operating gold project in the Philippines.
It is offering 0.74 B2Gold shares for each share of CGA, a 26 per cent premium to CGA's closing price as of Sept. 17.
Gold prices are near $1,800 (U.S.) an ounce, just off record levels near $1,900 an ounce a year ago.
"I think in a more buoyant market like we have now, there is a greater chance of things getting done," said Jens Mayer, co-head of investment banking at Canaccord Genuity Corp., which advised B2Gold on the deal. "People are getting accustomed to the new world in terms of valuations."
The B2Gold/CGA deal is one of the largest involving a Canadian company in recent months, adding some shine to what has been a lacklustre year for deal making in the sector.
A global mining report by consultancy PricewaterhouseCoopers shows deal-making volumes fell more than 30 per cent in the first half of 2012 from a year ago.
But the report also predicted that deals will pick up as buyers in need of ounces to replenish gold reserves match themselves up with companies who would rather sell at a premium than to have to finance major new developments by issuing undervalued shares.
Toronto-based Yamana Gold Inc. reached just such a deal in June with Extorre Gold Mines Ltd., agreeing to pay $395-million (Canadian) for the owner of a gold and silver property in Argentina.
Extorre said it decided to sell after its share price fell dramatically in the backdrop of global political and economic uncertainty and a selloff of non-producing junior miners. It also cited concerns with respect to share dilution that would arise from a decision to develop the Cerro Moro project.
"Miners with cash are viewing it as an opportunity to take advantage of lower valuations by entering M&A discussions and finding creative ways to fund projects," the PwC report said.
Vancouver-based B2Gold is the largest gold producer in Nicaragua, where it has two operating gold mines, La Libertad and Limon, with capacity to produce close to 150,000 ounces a year. It also has exploration projects in Nicaragua, Colombia and Uruguay.
The company, one of a select few foreign miners operating in Nicaragua, is run by the former management of Bema Gold Corp., which was acquired by Kinross Gold Corp. for $3.5-billion in 2007.
"With this transaction, B2Gold has taken a major step towards cementing itself as a leading gold sector consolidator," said B2Gold chief executive officer Clive Johnson, who also worked in Chile during the regime of former dictator Augusto Pinochet.
Buying CGA, listed on the Australia and Toronto stock exchanges, is a transformative deal for B2Gold, adding the Masbate gold mine in the Philippines to its portfolio and effectively doubling production while putting it into a new jurisdiction.
Global gold miners are finding it increasingly difficult to replace output capacity, especially from deposits that are at, or close to, the production stage, and acquisition is the fastest route.
Masbate, with production capacity of 200,000 ounces a year, is the nation's largest operating gold project.
"It's exactly the type of activity we expect to see more of," said John Nyholt, Canadian mining deals leader at PwC.
B2Gold (BTO)