DOING SOME DIGGING – Another Ride on the Merger-Go-Round

My head is spinning as mergers between Canadian gold producers are announced, derailed and failed. It's been going...
My head is spinning as mergers between Canadian gold producers are announced, derailed and failed. It's been going on since March 2004 when IAMGOLD and WHEATON RIVER first said they wanted to be One. It continues today with the latest round of manoeuvring around the would-be friendly union of GOLDCORP and self-same WHEATON RIVER, which has attracted the unwanted attention of GLAMIS GOLD.

Last December Goldcorp and Wheaton River announced plans to merge their assets under the name 'Goldcorp' and the leadership of Wheaton River's Ian Tefler. The changes would leave Goldcorp CEO Rob McEwen free to step down from the top job, as he had indicted he wanted to do.

The deal looked like a win/win situation. Goldcorp's flagship asset is the rich Red Lake gold mine in Ontario (featured in the January 2005 issue of CMJ). Wheaton River's five gold projects are scattered across Latin America and Australia. Combined, the companies would have 2005 gold production of 1.1 million oz at an incredibly low cash cost of US$60/oz, and output was expected to grow to 1.5 million oz of gold by 2007.

It has been said that no good deed goes unpunished. If creating a low-cost producer of 1.5 million oz of gold annually is a good deed, Glamis made a hostile bid for Goldcorp in an attempt to derail the merger the week after it was announced. Then the jockeying began in earnest.

On Jan. 12, Goldcorp announced that it had engaged BEAR, STEARNES & CO as co-financial advisor with GMP SECURITIES to ensure the success of the Wheaton River acquisition.

Two days later Glamis circulated a press release insisting that "Goldcorp's engagement of its third investment bank in as many months does not serve the best interests of Goldcorp shareholders."

The same day (Jan. 14), Goldcorp invited the investment community to lunch to promote the original merger, but the company abruptly cancelled the get-together mid-morning. It also announced that it had created a special committee to reconsider the offer from Glamis, the same offer that had been rejected a month earlier.

The latest announcement has generated a flurry of speculation. Is the Goldcorp/Wheaton River deal merely the product of McEwen's ego? Is support from his board of directors falling away? Which side can be believed as to what is truly best for Goldcorp shareholders? Will Wheaton River be left out in the cold again? What has happened to IamGold, whose bid to merge with GOLD FIELDS failed after its bid to merge with Wheaton River was thwarted? Round and round go the questions.

The entire affair is supposed to be wrapped up in a few weeks. Goldcorp shareholders must vote on the Wheaton River merger at the end of this month. The Glamis offer will stay on the table until Valentine's Day. I for one will be glad if this is the last merger-go-round ride in the gold industry for a long time.


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