Wednesday, Canadian gold miner Eldorado Gold Corp. (EGO,ELD.TO) and Australia-based Sino Gold Mining Limited in a joint statement said Eldorado agreed to buy the remaining stake in Sino Gold that it does not currently own, in a stock deal. The transaction values Sino Gold, with operations in China, at about A$2.2 billion or C$2.0 billion, and is expected to close in early to mid December. The deal is expected to create the premier intermediate gold producer with combined market capitalization of about C$6.4 billion.
Eldorado, with operations in Brazil, China, Greece, and Turkey and surrounding regions, currently owns about 57.97 million Sino Gold shares, representing 19.8% of the issued and outstanding shares of Sino Gold, which was acquired in late July under a share purchase and sale agreement with Gold Fields Australasia Ltd. Eldorado had said then the acquisition was for investment purposes and may acquire further shares of Sino Gold or dispose of some or all of its shares of Sino Gold as conditions warrant.
The companies now said the consideration for the transaction, which will be through a Scheme of Arrangement under Australian law, will be Eldorado shares, with each Sino Gold shareholders offered 0.55 Eldorado shares. The exchange ratio of 0.55 Eldorado shares for each Sino Gold share represents a value of A$7.24 per share based upon the closing price of Eldorado on the TSX on Tuesday of C$11.96. This is premium of 21.3% to the closing price of Sino Gold's shares on the ASX on Tuesday, and 32.3% to 30- trading day volume weighted average trading price of Sino Gold's shares on the ASX.
The exchange ratio also represents a premium of 23.8% based on the 30-trading day volume weighted average trading prices of Eldorado's and Sino Gold's shares on the TSX and ASX respectively.
The deal is subject to the completion of confirmatory due diligence by both companies prior to September 14, as well as a number of customary conditions precedent, including the receipt of required regulatory and Australian court approvals, and the approval of Sino Gold shareholders. Sino Gold said it would seek a Court order to convene a meeting of its shareholders to approve the Scheme, expected to be held in late November this year.
The companies pointed out that the Sino Gold Directors unanimously recommend its shareholders vote in favor of the proposed scheme. Following the completion of the transaction, current Eldorado shareholders will own about 75% of the merged company and current Sino Gold shareholders, excluding Eldorado, will own approximately 25%. Including Eldorado as a shareholder, Sino Gold's ownership would have reached approximately 30%.
The deal is expected to result in combined current gold production of 550 thousand ounces from 4 new, high quality mines, growing to 850 thousand ounces by 2011 from 6 mines. The project pipeline and expansion opportunities are expected to fuel gold production growth to beyond 1 million ounces by 2013. The companies also expect unhedged proven and probable reserves of 12.7 million ounces from 18.8 million ounces of measured and indicated resources, and 5.3 million ounces of additional inferred resources.
Following the deal, Eldorado will continue to be headquartered in Vancouver, British Columbia, while it intends to retain a significant regional office in Sydney, Australia, on consummation of the Scheme.
Jake Klein, President & Chief Executive Officer of Sino Gold, will remain in his position until the transaction closes, after which he will provide consultancy services to Eldorado. Eldorado's Board of Directors will invite two directors from the board of Sino Gold, including the current Chairman of Sino Gold, James Askew, to join its board.
Commenting on the acquisition, Paul Wright, President & Chief Executive Officer of Eldorado, stated, "Eldorado entered China in the fall of 2004 recognizing that China was quickly emerging as the most important gold producing country in the world. The business combination with Sino Gold enables Eldorado to realize its vision of establishing a leading presence in China."
Jake Klein added, "Sino Gold's view is that the best value creating opportunity for its shareholders is as part of leading low-cost intermediate gold company, and we believe that this merger with Eldorado gives our shareholders exposure to such a company on attractive terms. The combined entity will continue to benefit from a strong exposure to China, one of the world's most prospective gold-producing countries, while benefiting from portfolio diversification across Turkey, Greece and Brazil."
The companies pointed out that their Scheme Implementation Deed contains certain customary terms, including no shop and no talk provisions, mutual break fee of A$21 million payable in certain circumstances, as well as providing Eldorado the right to match a competing proposal.
Eldorado also proposes to acquire all outstanding Sino Gold employee options through an options scheme of arrangement under Australian law.
In the transaction, Eldorado's financial advisor is Macquarie Capital Advisors, its Australian legal advisor is Freehills and its Canadian legal advisor is Fasken Martineau DuMoulin LLP.
Sino Gold's financial advisor is Goldman Sachs JBWere, its Australian legal advisor is Allens Arthur Robinson and its Canadian legal advisor is Cassels Brock & Blackwell LLP.
EGO closed Tuesday's regular trading session at $11.02, up $0.13, on a volume of 2.25 million shares.
ELD.TO settled at C$11.96 on Tuesday, up C$0.31, on a 2.2 million share volume.
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