Goldcorp Acquires Andean Resources - Analyst Blog

Goldcorp Inc. (GG) announced that it has completed the previously announced acquisition of Sydney, Australia-based Andean Resources Limited (AND.AX) for approximately C$3.6 billion ($3.4 billion). The acquisition brings to Goldcorp the Cerro Negro Gold project, an advanced-stage, high-grade vein system with substantial expansion potential adding to Goldcorp's peer-leading low cost growth pipeline.

Earlier in September, Goldcorp had entered into an agreement to acquire all the outstanding shares of Andean Resources - a mineral resources company which engages in the acquisition, exploration,and development of precious metals properties in Argentina. It explores for gold and silver deposits.

Andean's principal asset, the Cerro Negro gold project in Argentina is an advanced-stage, high-grade vein system across an area of 83 square miles. It has reported indicated resources of 2.54 million ounces of gold and 23.56 million ounces of silver.

Further, inferred resources total 523,000 ounces of gold and 3.12 million ounces of silver. Cerro Negro also contains several other vein structures. including the Mariana Central zone, where numerous recent drill intercepts have demonstrated high-grade gold and silver over significant widths.

Cerro Negro is expected to generate significant gold production at low cash operating costs following a relatively short construction period. Further Goldcorp sees opportunities in expansion of the existing deposits and discovery of additional zones along the strike of the veins and of new veins. 

Per the agreement announced earlier, each Andean shareholder would receive 0.14 shares of Goldcorp or cash payment of C$6.50, subject to a maximum cash consideration of C$1 billion for each Andean share held. Andean shareholders were given the option to choose between cash or shares or any combination of cash and shares, subject to the aggregate cash limitation. Goldcorp's offer represented a 35% premium over Andean's closing price as on September 2, 2010 and a 56% premium to Andean's 20-day volume weighted average trading price.

Goldcorp has completed the transaction as certificates representing Goldcorp shares issued as share consideration and cheques for cash consideration for those Andean shareholders that opting for cash have been dispatched to Andean shareholders.  The new Goldcorp shares issued as consideration will commence trading on the Toronto Stock Exchange and New York Stock Exchange on December 30, 2010.

Goldcorp follows an aggressive acquisition strategy for attaining growth similar to other industry players like Barrick Gold Corporation (ABX) and Kinross Gold (KGC). The acquisition of Glamis Gold Limited and Placer Dome's Canadian assets were major milestones for the company.

Goldcorp's merger with Glamis Gold Limited in 2008 positioned it as the world's largest gold mining company. The company also acquired the Placer Dome Canadian mines and other agreed interests from peer Barrick Gold, which pushed its annual production up by 50% and increased the gold reserves by 72% in 2009.

We are optimistic about Goldcorp's Penasquito mine in Mexico, which commenced commercial production in September 2010. In addition, Goldcorp divested many of its non-core assets, generating huge cash flows, which are likely to be used for future growth projects.

However, Goldcorp is exposed to various political and economic risks. Goldcorp also faces foreign exchange risk as it pays most expenses in local currencies and sells in dollars. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Vancouver, Canada-based Goldcorp Inc. is a leading gold producer engaged in gold mining and related activities including exploration, extraction, processing and reclamation. Goldcorp has operations in Canada, the US, Mexico and Central and South America. Apart from gold, the company also produces copper and silver. It competes with the likes of AngloGold Ashanti Ltd. (AU), Barrick Gold Corporation and Newmont Mining Corp. (NEM).

 
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