Posts Tagged ‘Eldorado’

Is BHP Billiton too big to grow?

November 5, 2010 1 comment

The (provisional) refusal of the Canadian government to let BHP Billiton acquire PotashCorp of Saskatchewan is the third regulatory limitation to growth the company faces in a short period. As regulators around the world are afraid the company gains a dominant position in mineral markets, what options does the CEO, Marius Kloppers, have left to grow the company?


  • In February 2008, shortly after mr. Kloppers took over as CEO, BHP did a hostile takeover bid for its largest rival: Rio Tinto. The offer, worth approx. $165bln, was withdrawn in November 2008 after regulators indicated the deal would not gain anti-trust approval and the access to debt dried up in the capital markets.
  • After the failed acquisition, the two companies agreed to try to realize a significant part of the synergies the merger would have created by setting up a Joint Venture to develop the Pilbara iron ore deposit in Western Australia. However, after both Australian and European regulators indicated this would create an iron ore player that would be too dominant, the plans were cancelled last month.
  • The $39bln offer for PotashCorp appears to be a move in which BHP Billiton does not build up a dominant position in any market. If BHP manages to break the cartel-based pricing system for potash the deal might actually benefit the world economy. Still the Canadian government seems to be inclined to let the deal stall to protect the domestic industry and tax revenues.


  • BHP Billiton has approx. $12bln cash on the balance sheet and is earning more cash rapidly due to the high iron ore price. Typically mining companies need approx. 2-3% of asset value in operating cash, leaving BHP with some $10bln excess cash. The low leverage and the high credit rating of the company enable it to raise at least $30bln additional cash by increasing debt. However, it is hard to select acquisition targets that might actually lead to a combination that will be approved by regulators.
  • The company will either need to focus on acquiring large players in markets where it does not have a strong presence yet, or focus on acquiring many smaller players or individual assets. As the company is trying to reduce the portfolio complexity, expansion into completely new markets is unlikely. Potential acquisition targets might be Newmont, Goldcorp, Freeport-McMoran or Eldorado in the gold market and Eramet, Inmet Mining and Outokumpo in the base metal market. Expansion into the industrial minerals sector would also be an option.
  • The best way for mr. Kloppers to make a name for himself would be to make BHP Billiton the first major western mining company to build up a strong operating presence in China and/or India. Creating a Joint Venture with a local player might be the best option to achieve this.

©2010 | Wilfred Visser |

Eldorado Withdraws Bid for Andean

September 8, 2010 Comments off

“Eldorado Gold Corp. Tuesday withdrew its bid for Andean Resources Ltd., saying it wouldn’t top Goldcorp Inc.’s offer of 3.6 billion Canadian dollars (US$3.48 billion), which Andean accepted last week. Eldorado’s decision dashed hopes among some investors who were looking for a sweetened offer for Andean.

After Vancouver-based Eldorado pulled its bid, shares of Andean Resources, based in Sandy, Utah, declined Tuesday. Andean shares fell 8.5% to close at C$6.39 on the Toronto Stock Exchange. Andean is listed in Toronto and Australia. Eldorado shares rose 1.5% to C$20.18.

Andean shares had surged Friday to C$6.98, above the prices offered by Goldcorp and Eldorado, both based in Vancouver, in anticipation of a possible bidding war. Both suitors were lured by Andean Resources’ promising Cerro Negro gold mine in Argentina, which Andean said in July could produce as much as 285,000 ounces of gold a year at low cost, starting in 2012, with the potential for exploration to nearly double that output.”

Source: Wall Street Journal, September 7, 2010


  • Eldorado was the first to make a bid for Andean. However, the Goldcorp placed a slightly higher bid which was recommended by Andean’s board after the same board rejected Eldorado’s offer.
  • The deal between Goldcorp and Andean has not yet been closed. In case a better bid is done by another player the board will evaluate the fit between companies and the height of the bid to make a recommendation to shareholders.


  • Although Eldorado’s withdrawal is not good news for the Andean shareholders who hoped for a higher bid, it is good news for investors in gold. Goldcorp has the financial resources to quickly develop the Cerro Negro deposit, which will increase supply. However, the acquisition makes Goldcorp the second largest gold miner (after Barrick), increasing consolidation in the industry and moving towards a more oligopolistic structure, which will result in higher prices. Therefore, gold futures rose to $1257/ounce.
  • A higher cash offer than Goldcorp’s offer is unlikely. In case another company bids for Andean, the bid is likely to be part cash, part share-based or all shares.

©2010 | Wilfred Visser |

Andean Subject of Gold Major Bidding War

September 3, 2010 Comments off

“One of the world’s most prospective gold companies, Andean Resources Ltd., has become the subject of a bidding war between two Vancouver-based global gold majors. Andean, based in Australia, has rocketed to international industry prominence in the past two years through the rapid development of its high-grade, low-cost Cerro Negro gold project in Argentina.

Goldcorp Inc. and Andean said Friday they had reached an agreement for Goldcorp to acquire all Andean shares through a combination of shares or cash that values Andean at 3.6 billion Canadian dollars (US$3.4 billion). Under this arrangement, each common share of Andean will be exchanged for either 0.14 shares of Goldcorp or a cash payment of C$6.50/share, subject to an aggregate maximum cash consideration of C$1 billion. “

Source: Wall Street Journal, September 3, 2010


  • Cerro Negro contains 2.1 million ounces of gold and 20.6 million ounces of silver in probable reserves. At capacity of 285 thousand ounces this will result in a mine life of only 7 years.
  • Average cost of production is projected to be $60 per ounce, resulting in a production margin of over 90%.
  • Goldcorp currently offers $3.4bln, while Eldorado’s offer priced about 2% lower was rejected 2 weeks ago. Eldorado has made a new offer today.


  • Goldcorps shares dropped slightly less than Eldorado shares upon the offers, indicating investors believe Goldcorp to be able to achieve more synergies. Although Eldorado is growing fast and building a strong portfolio of assets, the geographic and operational variance between the projects hinders the realization of synergies.
  • The gold business is experiencing a boom and a strong increase in M&A activity due to the high price levels. Exploration costs for gold deposits account for nearly half of the total global exploration costs.

©2010 | Wilfred Visser |