CANADIAN PERSPECTIVE: HudBay, Lundin bucked off merger-go-round

Big and small companies are still jockeying for position on the merger-go-round. Unfortunately, not everyone is com...

Big and small companies are still jockeying for position on the merger-go-round. Unfortunately, not everyone is completing the ride; some are being bucked off. It appears, however, that even in times of scarce financing, there are deals to be done for enterprising executives.


One of the highest profile mergers, that of HudBay Minerals and Lundin Mining, has been derailed. The two companies agreed to terminate their arrangement agreement on Feb. 23. The deal was stridently opposed by HudBay corporate investors who demanded the deal go to a shareholder vote. The Ontario Securities Commission agreed and overturned a previous approval without a vote made by the Toronto Stock Exchange. Although Lundin shareholders had already voted in favour of the merger, HudBay determined that it was unlikely its shareholders would approve the deal. HudBay currently holds a 19.9% interest in Lundin.


The takeover of Orezone Resources by IamGold Corp. was complete on Feb 25, and Orezone Gold Corp (a new company holding the exploration projects of Orezone) began trading on the TSX. The acquisition gives IamGold a 95% interest in the four-million-ounce Essakane gold development project in Burkina Faso. The project could reach full production at over 300,000 oz/year in late 2010. 


Potash One and Potash North Resource Corp. have signed a binding letter of intent for Potash One to acquire all the shares of Potash North in an all-share transaction. Potash One is at the feasibility stage for its Legacy solution mine in southern Saskatchewan. Potash North is exploring two deposits closer to the Manitoba border. According to Potash One, the takeover will create a single, stronger junior development company, subject to regulatory approval.


PDX Resources and Detour Gold are on their way to completing a friendly merger. At 42%, PDX is the largest Detour Gold shareholder, but this deal will make PDX a wholly owned subsidiary of Detour Gold. Detour is conducting a feasibility study of its Detour Lake project, which includes a former producer of the same name. There may be as many as 13.2 million oz of gold yet to be recovered.


The fortunes of Minera Andes were buoyed in early February when Rob McEwen, who founded Goldcorp and is currently president and CEO of US Gold, agreed to pump C$40 million into Minera Andes on a private placement basis. His move drew attention to an earlier US$70-million takeover offer that Hochschild Mining made for Minera. At stake are Minera's 49% interest in the San Jose silver-gold mine and the Los Azules copper project in Argentina. Hochschild bowed out, however, when McEwen increased his offer to $1.00 per share. The first tranche of the financing has closed leaving McEwen with a 30.9% interest in Minera Andes and the chairmanship.


Venezuela has become the brass ring for Rusoro Mining. The company has two producing gold mines in that country, a closed mine, a development project and several exploration interests. Hoping to add another near-term producer and an exploration project to its portfolio, Rusoro launched an unsuccessful takeover bid for Gold Reserve in December 2008. Now from Venezuela come reports that Rusoro and Crystallex are in merger talks. Crystallex has been unable to secure permission to develop its Las Cristinas gold project, but with the backing of Rusoro, that might change.


The merger-go-round keeps spinning. There are probably dozens of other business combinations in the works between junior explorers—too many to list. Hopefully, mergers between small companies will create larger entities that can weather today's financial uncertainties.


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