Skip to main content

The Globe and Mail

For Yamana, Extorre brings cheap reserves

Yamana Gold Inc. Chairman and Chief Executive Officer Peter Marrone speaks during the annual general meeting of shareholders in Toronto May 4, 2011.

MIKE CASSESE/REUTERS

Yamana Gold Inc. is getting a lot of potential cheap with its takeover of Extorre Gold Mines Ltd., thanks to its willingness to take the risk of operating in Argentina.

How cheap?

We're talking about something on the order of one half to two-thirds the price to buy a similar-stage deposit elsewhere in the world.

Story continues below advertisement

The acquisition valuation on Extorre and its main Cerro Morre project in Argentina is about $169 an ounce, and the total cost to buy and develop Cerro Morre is about $600 an ounce, estimates analyst Tanya Jakusconek of Scotia Capital. That's about 40 per cent of the current spot price of gold, compared to about 65 per cent for the average takeover of a mine developer.

Similarly, TD Securities looks at the takeover as a multiple of net asset value, and finds that it's about half what other companies in comparable transactions have fetched.

TD opines that it's going to be "very disappointing" for Extorre shareholders because of a "large Argentina discount," and that there's room for a counteroffer.

Another bidder would have to get as comfortable as Yamana is with doing business in Argentina, land of capital controls and nationalization threats. So far, the market is pricing in little chance of that happening. Extorre stock is trading about at the offer price.

Yamana shares, meantime, are showing no signs of investor jitters about more Argentina exposure. The stock is up (albeit after Yamana also increased its dividend).

Report an error Licensing Options
Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

Please note that our commenting partner Civil Comments is closing down. As such we will be implementing a new commenting partner in the coming weeks. As of December 20th, 2017 we will be shutting down commenting on all article pages across our site while we do the maintenance and updates. We understand that commenting is important to our audience and hope to have a technical solution in place January 2018.

Discussion loading… ✨