Jaguar to be next takeover target....?Who Is Yamana's Next Target?
By Michael J. DesLauriers
09 Mar 2006 at 12:39 PM EST
TORONTO (ResourceInvestor.com) -- Yamana Gold’s [TSX:YRI; AMEX:AUY], recent buying spree and stated goal of achieving annual production of 1 million ounces of gold by 2008 leaves one with the impression that there may be more merger and acquisition activity in the near future.
Assuming that the Desert Sun [TSX:DSM; AMEX:DEZ] deal goes through as planned it would appear that YRI would have annual production in excess of 800,000 ounces, a huge accomplishment, but still short of its new 1 million ounce goal. To that end, we believe that a good fit and possibly Yamana’s next target could be Jaguar Mining [TSX:JAG].
A deal with JAG would make sense on a number of levels. It would allow YRI to meet its new production target for 2008, and it would provide critical mass for Yamana in Brazil, where all of Jaguar and Desert Sun’s properties are located. It would also appear to be an accretive deal that could be done for stock.
Jaguar
Taking into account Jaguar’s recent financing, the company will have about 44 million shares outstanding and roughly 58 million fully diluted. Shares are currently trading at C$5.12 for a fully diluted market capitalization of about C$300 million.
This is an attractive valuation for a company that has reported a resource over its 4 projects in excess of 3 million ounces (and growing) and is projecting annual production of 235,000 ounces of gold starting in 2008. The company also has a huge land package of about 62,500 acres, which should go a long way to keeping the door open on the exploration side of things.
Indeed, if Jaguar can come in on time and on budget, it could easily be trading at twice the current level in a couple years time. For that reason, it is unclear if management, who has just orchestrated a financing without any warrant attached (kudos for treating shareholders properly) wants to be taken out at these levels.
But if Yamana could take the company out at C$7 per share it would cost them C$406 million minus almost C$100 million in cash - not a bad deal. Although the addition of JAG would raise the company’s average production cost a little bit, the overall number on 1+ million ounces of production would still be under $150/ounce, easily blowing away the competition.
Because Jaguar’s production is coming from four different sources, much like RNC Gold’s [TSX:RNC] production, it’s unlikely that the company will get as good a multiple as its peers. By bringing it into the low cost Yamana fold and putting all of these small projects together, one expects that it will achieve the critical mass necessary to generate a more robust multiple from the market, competitive with the other mid-tiers. Jaguar shareholders would get that benefit and still be part of a company with substantial upside going forward.
It would appear that the acquisition of Jaguar could be completed at a significant discount relative to what was paid for Desert Sun, allowing Yamana to achieve its production goals, and providing a stronghold for the company in Brazil.
The math seems to add up and the deal seems logical for both parties, so it will be interesting to see, over the next 12 months or so, if JAG is indeed the next target. Either way, both companies represent good value at current levels.
Shares in JAG and YRI were trading at C$5.11 and C$10.13 in early morning trade on the TSX, Thursday.