Mineweb ArticleHAYWOOD URGES MERIDIAN SHAREHOLDERS WAIT
Meridian Gold rejects Yamana/Northern Orion ‘bid’, although formal offer not yet made
Although Meridian Gold has yet to receive a formal takeover offer from Yamana Resources and Northern Orion Resources, Meridian’s board doesn’t see the value in the two companies’ announced bid for the Reno-based gold miner. Meanwhile, Haywood Securities is urging Meridian shareholders to wait for a sweeter, less copper-filled merger.
Author: Dorothy Kosich
Posted: Wednesday , 04 Jul 2007
RENO, NV -
While Meridian Gold has yet to receive a formal offer from Yamana Gold and Northern Orion in their proposed three-way cash-and-stock bid for the Reno-based gold miner, Meridian’s board Tuesday said it has decided Yamana’s bid announcement does not “provide a basis to enter into discussions with Yamana.”
“Meridian Gold’s Board of Directors noted that the 16% premium to Meridian’s undisturbed share price on Tuesday, July 3rd does not reflect the value of Meridian Gold’s proven, high-quality, precious metals-focused asset base,” Meridian (TSX: MNG, NYSE: MDG) declared in a news release.
“In addition to the heavy base metals weighting in the proposed combined entity, the complexity of the three-way structure creates further risks and uncertainties.”
Last week Toronto’s Yamana Gold (TDEX: YRI, NYSE: AUY) and Northern Orion Resources (TSX: NNO, AMEX: NTO) announced they have entered into a business proposal and that a concurrent offer has been made to Meridian to combine the three companies. Yamana and Northern Orion agreed that Yamana would acquire at least 66 2/3% of the common shares of Meridian, and concurrently all of the shares of Northern Orion.
If a consensual transaction with Meridian can not be achieved, Yamana and Northern Orion will launch a joint $3.06 billion hostile bid against Meridian. Northern Orion has agreed to fund US$200 million of the $300 million of the cash component of the Meridian offer. The companies would make a hostile offer of 2.235 Yamana shares for plus Cdn$3.15 in cash for each Meridian share. Northern Orion shareholders would receive 0.543 Yamana shares for each Northern Orion share.
The three-way combination would create a 1.4 million-ounce gold miner by 2009 with cash operating costs of less than negative US$100 per ounce, net of by-product copper credits.
However, not only Meridian’s board feels the Yamana/Northern Orion offer is insufficient. In an investment brief published last week, Canada’s Haywood Securities asserted that the bid was “not high enough to entice Meridian shareholders.”
“We believe Meridian’s shareholders will require a higher offer before they will trade their gold/silver exposure for a blended pro forma gold/copper company,” wrote metals analysts Kerry Smith and Josh Clelland. They noted that Yamada and Northern Orion would bring substantial copper production to Meridian’s gold and silver production.
“In our opinion, Meridian shareholders are looking for high-quality gold exposure, and will not like the copper/gold exposure that the proposed deal offers. In addition, the shareholder base of Meridian does not complement Yamana’s shareholder base, with Fidelity, Royce and Associates, and T. Rowe Price, the largest shareholders of Meridian, while Capital Research and JP Morgan are the largest Yamana shareholders,” said Smith and Clelland.
Haywood Securities urged that Meridian shareholders “should hold out for a sweeter offer,” citing Meridian remains unhedged, is debt free, has US$212 million in cash “and continues to generate excellent free cash flow from El Penon and Minera Florida.”
This year, Haywood forecasts that Meridian will produce 230,000 ounces of gold and 8.5 million ounces of silver at El Penon, 65,000 ounces of gold and 365,000 ounces of silver from the recently acquired Minera Florida mine, and 25,000 ounces of gold net to Meridian from Nevada’s Rossi mine.
“The high quality of the company’s operating assets and continued exploration success have allowed Meridian to earn a premium market multiple, as few companies have generated consistent low-cost production over time, along with Meridian’s solid reserve replacements,” according to Haywood’s analysis. Nevertheless, the analysts also feel that Yamana and Northern Orion’s plan would create a US$7 billion company with strong cash-flow capability, a South American focus, and decent production growth—similar to the Glamis gold of 3 to 4 years ago. This combination would also bring from Meridian a top-notch exploration team with a fantastic track record.”