TORONTO- Armed with an influx of money from near record-high bullion pricesbut facing a dearth of new gold prospects, Canada's top gold miners arecompeting for projects containing increasingly profitable metals likecopper and silver.
The world's largest gold producer, BarrickGold Corp. (TSX:ABX), and other large miners are pursuing copper-goldprojects and gold-silver projects, as pure gold plays become scarce,said Barrick spokesman Vincent Borg.
"The reality is the world is pretty much explored in terms of pure gold deposits
,so what people are looking for today are called gold-copper porphyries,where the copper comes with the gold, or multi-mineral deposits," hesaid.
Toronto-based Barrick's deal to buy mining giant XstrataPLC's (LSE:XTA) 70 per cent share of a lucrative Chilean copper-goldproject was scuttled Thursday by rival Goldcorp Inc. (TSX:G), Canada'ssecond largest gold producer.
To secure the deal, Goldcorp saidit would supply New Gold (TSX:NGD), which owns 30 per cent of theproject, with US$463 million to exercise their first right of refusaland buy out Xstrata's stake in the El Morro project, then sell Goldcorpa 70 per cent interest.
Borg said that Barrick had also discussed a potential deal with New Gold, headed by Randall Oliphant, a former chief executiveof Barrick. But he could not comment on reports that Barrick hadoffered the junior miner $300 million a day before the deal wasannounced.
Borg added that Barrick is not ruling out the possibility of making another bid for the El Morro project.
AndreHidi, head of global mergers and acquisitions at BMO Capital Markets,predicted an acceleration of M&A activity in the mining sectorthroughout 2010.
He said interest in projects that require morecapital will pick up, as a lack of supply - fewer quality deposits inpolitically stable jurisdictions - contributes to higher metals prices,which will in turn increase miners' cash flow. Hidi added that gold producers are accruing larger stakes in base metals as a result.
"Thereis more of an appetite for gold companies, particularly where there'sgold and copper, or other metals together, but even to some extent tolook at base metal deposits to add to the... quality of their assets."
Goldcorp'slatest deal follows a winning offer - after an intense bidding war withMinera Penmont - for control of Canplats Resources Corp.'s (TSXV:CPQ)Camino Rojo gold and silver discovery in Mexico.
Canplats CEOGordon Davis said his board of directors is recommending Goldcorp's$277-million offer to shareholders, which has been delayed to Jan. 28from Jan. 14 after the drawn-out bidding process.
"When we comeup with a discovery we could develop it ourselves but under thesecircumstances, its more likely that a more major company is going to beattracted to it," he said.
Goldcorp CEO Chuck Jeannes said thatstrong metal prices have put the Vancouver-based miner in a position toaggressively pursue growth projects, using cash flow from existingoperations to pay for new acquisitions.
"We're not limitingourselves to looking at pure gold projects. We would be unable to meetgrowth objectives if we didn't look at assets that have other metalsalong with the gold," he said.
"We're very bullish on gold overthe long term, but as well we think that copper prices will likelyimprove along with gold. There will be an economic recovery worldwide and that should signal stronger demand for copper," he added.
Atcurrent prices, copper is actually more profitable than gold, saidScotiabank vice-president and commodities specialist Patricia Mohr. Shesaid that by 2011, copper will rise further to become a betterinvestment than gold.
"When (large gold miners) get one of theseprojects, you might have the impression that it's really the goldthey're after and it probably is. But looking at this from a broaderperspective, the copper is probably more valuable," she said.
Mohradded that because the potential for new gold projects is limited,large companies are keen to acquire projects from junior miners, whichis often the most cost-effective way of doing business for both players.
Borgsaid gold-copper projects, such as the El Morro project, which it isestimated will cost about $2.5 billion to build, require a significantcapital investment.
"That tends to leave them to the largerplayers because the smaller guys can't raise the capital or don't havethe cash to fund the construction."
New Gold spokesman HannesPortmann said that large companies are increasingly seeing value indiverse metal projects, like El Morro.
"Certainly the largecompanies that need large assets to make a difference in their alreadyvast portfolios are looking at these projects," he said.
"There'sstill other large gold deposits out there... but they are increasinglymore scarce, particularly in jurisdictions that are perceived to befriendly towards mining."
Shares in heavily traded New Gold were up nearly seven per cent to $4.86 on the Toronto Stock ExchangeFriday, after a 13 per cent spike Thursday, while shares in fellowjunior miner Canplats were also heavily traded, but were down six percent to $4.77.
Meanwhile, shares in larger Barrick, up 10 cents to $42.74, and Goldcorp, up 59 cents to $43.80, were relatively flat.
Thebase metals sector was up 3.21 per cent with March copper off threecents at US$3.41 a pound. Copper has climbed steadily from below $1.50in early 2009. The TSX gold sector was ahead one per cent as theFebruary bullion contract climbed $5.20 to US$1,138.90 an ounce. Goldsoared beyond $1,200 in early December from below $750 in late 2008.