Contrary to firms like Minmetals Resources and Equinox Minerals (EQMIF.PK), which are bidding for takeovers in 2011, Goldcorp (GG) was a player in the mergers and acquisitions game last year. That activity is starting to pay off.
Goldcorp has announced that the resource estimate at its newly-acquired Cerro Negro project in Argentina has doubled. Proven and probable reserves jumped from 2.1 million to 4.3 million ounces of gold and 20.5 million to 36.2 million ounces of silver. That’s more than double the gold and about 75 per cent more silver.
The market isn’t overly crazy about the news, with the stock up only about 2 per cent, but that’s not the important story. The reminder that not all takeovers are bad is more interesting.
It’s easy to grow fearful of takeover mayhem when bidding wars like the one among Minmetals, Equinox and Lundin (LMC) break out. Companies tack on too much debt. Premiums become outrageous. Yet remember that there can be some logic behind these deals.
In Goldcorp's case, chief executive officer Chuck Jeannes has referred to Cerro Negro as the company’s “next cornerstone gold mine.” He has also said the project will be extremely important in helping to increase production by 60 per cent over the next five years. In other words, it's a core part of the company's strategy, not just something it wanted to buy for the sake of buying.
Goldcorp acquired Cerro Negro when it closed its acquisition of Andean Resources for $3.6-billion in December. In 2010 the miner also bought a 70 per cent interest in the El Morro copper-gold project in Chile. With those deal done, Mr. Jeannes told Reuters in March that M&A is no longer a priority, which makes sense.