The announcement on the Meridian Gold site is not enthusiastic: “Consistent with its fiduciary duties, Meridian Gold’s Board of Directors will carefully review and consider the offer and will advise Meridian Gold shareholders of the Board’s recommendation with respect to the offer and the reasons for its recommendation within the next ten business days. Accordingly, Meridian Gold urges its shareholders to defer making any decision with respect to the Yamana offer until they have been advised of the Board’s recommendation.”
By way of disclosure, I have consulted to Meridian Gold on some of their operations including Beartrack and the Royal Mountain King Mine. I like and admire the people from Meridian for whom I have been privileged to work.
Thus the news of a take-over by a company that I had never heard of before woke me up. It appears Yamana Gold has been in operation since 2003 and has five gold mines in Brazil and Central America. They have a cash balance of nearly $70 million, a revolving line of credit of $200 million, and in 2006 completed an equity financing for the issue of 17 million shares for proceeds of $200 million. I cannot but be impressed by an offer of $3 billion, made on the basis of mere millions in the bank.
Now I have never understood high finance–and it is high finance when with a mere $70 million in the bank, you offer to buy something worth $3 billion. Is this just a case of a company, Yamana, with foresight and courage. Foresight in buying a well-run company, Meridian, with some apparently fine prospects. Courage in making an offer predicated on going into debt to the tune of billions. Or is this just sheer male aggression and the testosterone of the battle field with one CEO after the blood and assets of another CEO? One blog I found called the fellow in charge at Yamana, Peter Marrone, an “action junkie.”
Considering that Yamana made its first ever payment to shareholders of a dividend of one cent in 2006, I wonder how enthusiastic the current shareholders of Meridian will be to give up their company to Canadians. Of course they will be tempted by Yamana’s offer that is reportedly more than 25 percent over the current price of the shares–now that is high finance again. But clearly Yamana is aggressive and bold. Here are some of their near-term goal as set out on their website:
1) Achieve target production from organic growth of at least 600,000 ounces of gold in 2007, increasing to a 1 million ounce per year run rate by late 2008.
2) Pursue acquisition targets that will increase production targets to more than 1 million ounces of gold annually.
3) Advance highest priority exploration properties to development.
4) Continue aggressive exploration of extensive exploration portfolio.
5) Expand focus to growth opportunities outside of Latin America.
Nothing laid-back about that.
The other thing that amazes me about all this is the near total absence of intelligent analysis in the blogs and news reports. It all seems to be emotion and no fundamentals. One blog analyzes the situation thus:
In Texas hold ’em poker, my least favorite hand is a pair of queens. It’s one of those hands where I’ve got to play it strong but I’m sweating the whole time. Any ace or king worries me and if the opponent shows strength, I’ve got to wonder about folding.
There is some news about how they will raise billions:
Yamana said that to complete the Meridian offer and the Northern Orion transaction, it would issue approximately 309.8 million new common shares, comprising 226.1 million and 83.7 million common shares to Meridian and Northern Orion shareholders, respectively and pay cash consideration of approximately US$305 million to Meridian shareholders. On an issued basis, the company noted that the pro rata shareholdings of the combined company are anticipated to be 53.4% existing Yamana shareholders, 34% existing Meridian shareholders and 12.6% existing Northern Orion shareholders.
Leaving aside all this amazing play of money and bravado, I would like to see a property by property breakdown of the two companies, their legacy environmental obligations, their future prospects in the face of anti-mining forces in Argentina, and their staff who make things happen. Thus and only thus would I be prepared to act. But in that I am probably alone, and the hype of “action junkies,” will, no doubt, attract “serious” investors.