2nd UPDATE: Andean Surges; Rival Gold Miners Woo Shareholders

Andean Resources Ltd. (AND.T) has two suitors at its doorstep and there's good reason to believe the bidding is just getting started.

Andean has reached a deal to be bought by Goldcorp Inc. (GG) for C$3.6 billion in cash and stock. But it also has Eldorado Gold Corp. (EGO) on its tail, which has proposed a C$3.4 billion offer in stock. Goldcorp's bid is valued at C$6.50 a share and Eldorado's is valued at C$6.36 a share.

The market appears to think a better offer could be in the wings. In Toronto Friday, Andean shares closed up C$2.17, or 45%, at C$6.98--well above both offers--on about 73.9 million shares. The shares earlier touched a high of C$7.33.

Dundee Securities analyst Ron Stewart said in a report that Andean's break fee, at just 1% of the offer, suggests Andean could expect another bid, and he wouldn't be surprised to see one given the high quality of Andean's Cerro Negro gold-silver project.

Stewart raised his Andean price target to C$7.25 from C$5 "to reflect the multiple premium we believe that might ultimately be required to complete the deal."

Australian laws limit breakup fees to 1%, Andean CEO Wayne Hubert said on a conference call.

Goldcorp doesn't appear overly worried about a sweetened bid from rival Eldorado. Goldcorp CEO Chuck Jeannes said on the call that its offer has the unanimous support of the Andean board, and has a lock-up agreement for 19.9% from a shareholder that holds 21% of the capital, and a right to match rival bids.

Australian laws prevent Goldcorp from locking up more than 19.9%, while in Canada, takeover rules are triggered if a suitor owns more than 19.9%, Jeannes said.

While Goldcorp has made a strong offer, with Eldorado in the picture there's a chance of a bidding war, Paradigm Capital said in a note.

"In our opinion, Eldorado was unlikely to have presented its best possible bid, leaving some of its powder dry to increase the bid, if needed, to get the deal done," the firm said, adding the price for Andean could push toward C$7 a share or higher.

In an interview, Paradigm Capital analyst Don Blyth said there's a chance Goldcorp's current bid "won't be its last." Not only has Eldorado refused to throw in the towel, but there is also a possibility that a senior miner, like Barrick Gold Corp. (ABX) or Newmont Mining Corp. (NEM), is "sniffing" around, he said. But he noted that seniors can take a long time to react in these situations.

One factor Eldorado feels works in its favor, however, is that under its bid Andean shareholders would hold about 24% of the combined company, compared to just 9% of the proposed Goldcorp entity, according to Eldorado's president and chief executive, Paul Wright.

John Ing, president of Maison Placements Canada, said bidding activity in the gold sector shows there's a shortage of high-grade gold deposits, and companies are willing to pay a big premium for them.

The fundamentals for gold remain strong, Ing said. Gold's traditional appeal as a safe haven is attractive to investors, who are worried about inflation and currency devaluation at a time of declining purchasing power and volatility in the stock market, he said.

Ing thinks Goldcorp has the upper hand in this situation, noting that the premium being paid is already very high and Eldorado's CEO is known for his "discipline."

Canaccord Genuity analyst Steven Butler said in a report that the Cerro Negro project should be attractive to several "majors," such as Barrick and Newmont, and he sees a "strong likelihood" of an increased offer for Andean. Other possible suitors include Anglogold Ashanti Ltd. (AU), Hochschild Mining (HOC.LN), Agnico-Eagle Mines Ltd. (AEM), Yamana Gold Inc. (AUY) and Compania de Minas Buenaventura (BVN), he said.

-By Andy Georgiades, Dow Jones Newswires; 416-306-2031; andy.georgiades@dowjones.com

Ansarada (ASX:AND)
Historical Stock Chart
From Dec 2024 to Jan 2025