Gold explorers are starting to give in to the reality that their shares may not see significant gains anytime soon, and agreeing to takeover offers even if the price looks subpar in the big picture.
Extorre Gold Mines Ltd. agreed Monday to a takeover by Yamana Gold that sounds like a nice premium, until you look at the stock chart.
The press release says Extorre Gold got a price of $4.26 a share, 54 per cent over the average trading price over the last 20 days. Which would be great if the stock hadn't been trading there just two months ago, and fetching $6 in March.
It's a similar story to Iamgold Corp.'s acquisition of Trelawney Mining and Exploration Inc.
Trelawney's stock slid from close to $6 at this time last year to below $3 before Iamgold pulled the trigger on a deal at $3.30. Did shareholders revolt at being taken out at what had to be a level that was far underwater for many of them?
Hardly - Trelawney's shareholder base signed on overwhelmingly.
Look for the same thing to happen in Extorre's situation, and likely in many more to come, as companies and their investors realize that having a nice project doesn't matter if you haven't got the wherewithal to develop it.
Extorre, like Trelawney, faced a terrible market for gold juniors. That meant extremely dilutive financing.
Extorre had the added problem of doing its work in Argentina, which has taken to nationalizing assets. Yamana is taking on that risk, so there's no reasonable expectation that it would pay anything close to what Extorre was trading at prior to the nationalization fears raising their heads.
As Extorre said in its release, given the "full set of circumstances,"this transaction represents a good outcome for all stakeholders."
Extorre was advised by Canaccord Genuity. Barclays Capital and CIBC World Markets advised Yamana.