Dealtalk: Northgate bid a risky step in AuRico makeover

Wed Aug 31, 2011 6:29pm EDT
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By Julie Gordon

TORONTO (Reuters) - AuRico Gold AUQ.TO is having a difficult time escaping the image of being a miner more prone to delivering disappointment than gold bars.

The Mexico-focused, Toronto-based company announced a C$1.46 billion ($1.5 billion) takeover offer for Northgate Minerals NGX.TO this week, a deal that would double its production and expand its geographic footprint. Its stock price promptly dived.

At the core of the fall are fears that gains made by the company in the last year could be lost because it may be paying too high a price for Northgate, which has high costs and posted a loss in its last quarter, despite record metal prices.

"They did a big deal and they paid a huge premium," said a trader in the stock who could not be named due to company policy. "On the other hand, (AuRico's) stock had been on a tear ... and it has still outperformed the group in a big way on the year."

In the 12 months ahead of the Northgate bid, AuRico shares rose more than 80 percent, boosted by a turnaround effort that began in late 2007, when the company hired Rene Marion as chief executive and launched a multi-year plan to transform what had been a lurching plow horse into a stallion.

Under Marion's leadership, the company revamped its lagging Ocampo and El Cubo mines in Mexico and cleaned up a balance sheet that had been consistently in the red.

Marion also replaced a chunk of the company's board and identified strategic opportunities, including the takeover of Capital Gold and its promising El Chanate project in Mexico.

But the takeover bid for Northgate came just a few months after AuRico closed the deal for Capital Gold, and the rapid-fire rate of consolidation has some analysts worried.   Continued...