September 19, 2011 / 6:09 PM / in 6 years

Canada's Agnico to buy junior explorer to boost Mexico

(Reuters) - Canadian gold miner Agnico-Eagle Mines (AEM.TO) is to buy Mexico-focused junior explorer Grayd Resource Corp GYD.V for about C$275 million ($279.6 million) to expand its reach amid soaring gold prices.

An eight-fold jump in gold prices in the last ten years has spurred miners to boost their global presence as they step up their hunt for the yellow metal.

Toronto-based Agnico’s deal follows weeks after Mexico-focused miner AuRico Gold AUQ.TO offered to buy Northgate Minerals NGX.TO for C$1.46 billion.

Agnico, which owns mines across Canada, Mexico and Finland, has set its sights on Grayd’s La India project, which is about 70 kilometers north west of Agnico’s Pinos Altos gold mine.

The C$2.80 per share offer represents a premium of 44 percent to Grayd’s Friday closing of C$1.95 on the Toronto Venture Exchange. Most recent deals in the sector have seen premium ranging between 30 percent and 40 percent.

In April, New Gold Inc (NGD.TO) offered a 31 percent premium for gold exploration company Richfield Ventures.

“I am thinking that Agnico must be seeing something much more than we know in the marketplace about Grayd,” analyst Barry Allan of Mackie Research Capital said.

“On a per ounce basis, it looks like a pricey acquisition.”

A preliminary economic assessment of the La India project in the Mulatos gold belt, which is at an early stage of development, showed a mine life of nine years, a net present value of $187 million and a capability of producing nearly 850,000 ounces of gold at $950 per ounce.

“It is expected that La India and, further out potentially Tarachi, will contribute to the ongoing growth in Agnico-Eagle’s gold production and cash flows,” Agnico chief executive Sean Boyd said in a statement.

Grayd, which looks to become a 100,000 ounce a year gold producer by 2013, recently discovered the Tarachi gold prospect near the La India project.

Shares of Grayd, which has a market value of C$178 million, jumped 42 percent to touch a lifetime high of C$2.76 on Monday morning. It was one of the most heavily traded stocks on the exchange.


Agnico has also offered Grayd a non-revolving term loan of C$5 million, of which C$600,000 has already been advanced.

Grayd shareholders will receive either C$2.80 in cash or 0.04039 of an Agnico share and 5 Canadian cents a share in cash for each share they own.

In July, Agnico had acquired a 9.2 percent stake in exploration company Rubicon Minerals (RMX.TO) via a private placement deal.

TD Securities was the financial adviser for Agnico, while Canaccord Genuity advised Grayd.

Agnico shares were up 41 Canadian cents at C$67.37 on Monday afternoon on the Toronto Stock Exchange.

($1 = 0.984 Canadian Dollars)

Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Sriraj Kalluvila, Saumyadeb Chakrabarty

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