June 3, 2014 / 12:37 PM / 3 years ago

UPDATE 2-Canada's B2Gold adds gold deposit in Mali with Papillon buy

* Deal to increase B2Gold's mineral resources by 25 pct

* Acquisition too expensive for B2Gold - analyst

* B2Gold shares fall 9 pct (Adds analyst comments, background, updates shares)

By Sneha Banerjee and Swetha Gopinath

June 3 (Reuters) - Canada's B2Gold Corp said it would buy Australia's Papillon Resources Ltd in a stock deal valued at $570 million to gain access to its Fekola gold deposit in Mali.

B2Gold shares fell as much as 9.2 percent on the Toronto Stock Exchange, on investor concerns over the company's plan to invest in a non-producing mine in a politically sensitive region.

There has been no trading in Papillon shares since May 23.

The Fekola deposit, located in south-western Mali close to the border with Senegal, could produce an average of 306,000 ounces of gold per year, according to Papillon's latest annual report.

Papillon was granted a permit earlier this year to develop and mine the deposit.

Mali is Africa's third-biggest gold producer behind South Africa and Ghana. A number of major miners, including AngloGold Ashanti, Randgold Resources Ltd and Endeavour Mining Corp, operate in the country.

The country is struggling to rebuild itself after a military coup and an occupation of its northern half by Islamist militants.

Tuesday's deal is expected to increase B2Gold's measured and indicated mineral resources by 25 percent.

But Dundee Capital Markets analyst Joseph Fazzini called the acquisition expensive and said the deal was a diversion from B2Gold's strategy of acquiring undervalued assets and unlocking value where others had failed.

B2Gold has bought Auryx Gold Corp, CGA Mining Ltd and Volta Resources in the past three years, along with some other assets.

The company said on Tuesday that it expected to produce between 395,000 and 400,000 ounces of gold in 2014 from its three operating mines, one in the Philippines and two in Nicaragua.

It expects output to increase to more than 900,000 ounces of gold by 2017 as it starts production in Fekola after completing its Otjikoto project in Namibia later this year.

DEAL DETAILS

Deal activity in the mining sector is picking up after a years-long lull, as companies look for synergies to help cut costs and improve operational efficiency.

B2Gold will offer Papillon's shareholders 0.661 B2Gold common shares for each ordinary Papillon share held.

The offer translates to A$1.72 ($1.59) per share, representing a 21 percent premium to Papillon's close on May 23, the stock's last trading day.

B2Gold's financial advisers include Canaccord Genuity Corp and Raymond James Ltd. Lawson Lundell LLP is the company's Canadian legal counsel and its Australian legal counsel is K&L Gates LLP.

Macquarie Capital is Papillon's financial adviser on the deal. Its Australian legal counsel is Hardy Bowen and its Canadian legal counsel is Stikeman Elliott LLP.

$1 = 1.0806 Australian Dollars Editing by Simon Jennings and Sayantani Ghosh

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