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Gold executives Rob McEwen and Ian Telfer Sunday proposed a deal to create "the world's lowest-cost million-ounce gold producer" through a $2.4-billion share swap in which Mr. McEwen's Toronto-based Goldcorp Inc. would absorb Mr. Telfer's Vancouver-based Wheaton River Minerals Ltd.

Wheaton River's shareholders are to be offered one Goldcorp share for each four shares they own. The enlarged company would be the fifth-largest North American gold producer (behind Newmont Mining Corp., Barrick Gold Corp., Placer Dome Inc. and Kinross Gold Corp.) and about eighth in the world, the two men said late Sunday from Mr. McEwen's Toronto office.

In Monday trading, Wheaton River shares rose 38 cents or 10 per cent to $4.14 in Toronto, while Goldcorp closed up a penny at $17.16.

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It would produce about 1.1 million ounces of gold next year at a cash cost (meaning direct cost excluding the company's cost of capital) of about $60 (U.S.) an ounce, they said. Gold ended last week at $456, a 16-year high, and some analysts see it being driven higher by a decline in the U.S. dollar and speculation that some nations, in particular in Asia, may reduce U.S. dollar holdings.

The company would continue to be called Goldcorp, but Wheaton's 58-year-old chief executive officer, Mr. Telfer, would take command as CEO after a year in which his company failed to merge with Iamgold Corp. of Toronto and fought off a takeover bid from Coeur d'Alene Mines Corp., based in Coeur d'Alene, Idaho.

Mr. McEwen, 54, declared his wish three months ago to give up the helm at Goldcorp after out-earning every other Canadian public company boss last year with total pay of $94.6-million, nearly all from executive stock options. Under the proposed deal, he would remain chairman "for the moment," he said. As Goldcorp's third-largest shareholder, "I have a very keen interest in seeing the value of that investment grow significantly," he said.

Among other conditions, the deal requires that Goldcorp get at least two-thirds of all Wheaton shares.

At Goldcorp's closing price of $17.15 last week on the Toronto Stock Exchange, it values each Wheaton share at $4.29, about 14 per cent above Wheaton's Friday close of $3.76. Based on a 30-day average price, the premium is a slimmer 7 per cent, the executives said.

The combined company would have gold at Red Lake in Northwestern Ontario and in the Black Hills of South Dakota (Goldcorp) and in Mexico, Argentina and Australia (Wheaton River). Mr. McEwen defined it further: "It'll be the largest, lowest-cost, mid-cap gold producer in the world ... In terms of direct operating cost - cash cost, as it's called in the industry - we'd be without a peer."

He said Wheaton's cash cost is below $50. At Goldcorp, he said, "we're just over $100, but our Red Lake mine is in the mid-80s and that's the bulk of our production." The company's Wharf Mines in South Dakota "is in the neighbourhood of $250 an ounce, but the Wharf mine is about to close," he said.

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Mr. Telfer said Wheaton produces about 500,000 ounces of gold a year (compared with Goldcorp's 600,000) plus about seven million ounces of silver, equivalent in value to another 100,000 ounces of gold.

"Wheaton River has grown fairly quickly by acquisition," he said, "and the biggest challenge you have growing that way is to get a world-class asset. Goldcorp has one of the richest and best gold mines in the world."

He said the Goldcorp plan is a very different prospect than a takeover by Coeur d'Alene. "Wheaton River's a very cash-flow-positive, very profitable, very low-cost producer. Coeur d'Alene was just the opposite in every category, whereas Goldcorp is very similar to us in production, very low cash cost, very profitable," he said.

British Columbia mining analyst Doug Hurst of D.S. Hurst Inc. said the proposed transaction reflects a market that sees small and mid-sized gold players bulking up to improve liquidity and become more attractive to managers of general equity funds.

With respective market values of about $3.2-billion and $2.1-billion, Goldcorp and Wheaton River would be in the $5-billion range together, perhaps getting more attention from U.S.-based funds contemplating gold as a currency hedge, he said.

Wheaton previously tried to beef up through a friendly merger with fellow Canadian producer Iamgold. That deal, announced in March, would have combined Wheaton's assets with Iamgold's stakes in four mines in Africa.

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But in May, surprise bids emerged for both Wheaton and Iamgold, and in July, Iamgold shareholders voted against the Wheaton transaction. Wheaton ultimately fended off a hostile bid from silver producer Coeur d'Alene, while Iamgold, which was being pursued by Golden Star Resources Ltd., in August announced a deal with white knight Gold Fields Ltd. of South Africa.

Gold Fields and Iamgold have proposed merging Iamgold's assets and Gold Fields' holdings outside of South Africa into a new company, Gold Fields International, but that deal has been thrown into question by a hostile bid, unveiled in October, for Gold Fields from smaller rival Harmony Gold Mining Co. Ltd. of Johannesburg. If Harmony were to succeed,, that deal would create the world's biggest gold producer, surpassing current No. 1 producer Newmont.

Gold Fields shareholders are scheduled to vote on the Iamgold transaction Monday Harmony's bid is conditional on the transaction not going ahead.

The current round of mergers and acquisitions is being driven by several elements, including the surging gold price and a push by many major producers to replace and build reserves.

After the Bre-X scandal of 1997, in which a supposedly giant gold deposit In Indonesia was revealed to be a hoax, many investors shunned the sector and exploration spending dried up. Gold prices began to climb in 2001 and money began trickling back into the sector. During 2003 and 2004, that trickled turned into a flood and the mergers and acquisitions scene heated up again.

The cutbacks in exploration after Bre-X means that many gold producers are scrambling just to replace the amount of gold they mine each year. Growth is a challenge, especially for the majors who have to replace millions of ounces. Barrick Gold Corp., for example, plans to spend at least $2-billion over the next five years (by 2009) to build five new mines.

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Vancouver-based Placer Dome recently tapped equity markets in a $451-million equity financing, the first since the company was formed through a merger in 1987. Placer Dome says it plans to use the proceeds for general corporate purposes, which may include new projects. It has several development projects in its pipeline.

At the same time that gold prices have been rising, cost pressures have been increasing. South African producers, in particular, are reeling from the impact of a strengthening rand.

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