TORONTO (Reuters) - Goldcorp (G.TO) said it planned to buy fellow Canadian gold miner Gold Eagle Mines GEA.TO for about C$1.5 billion ($1.47 billion) to pick up the Bruce Channel gold discovery, an exploration property that lies close to Goldcorp’s flagship Red Lake operation.
Goldcorp, Canada’s No. 2 gold producer, also reported an unexpected second-quarter loss, cut its production outlook for the year, and boosted its 2008 cost estimates.
Under the friendly deal, Gold Eagle shareholders will receive C$6.80 in cash and 0.146 shares of Goldcorp for each share. Goldcorp already owns 4.7 percent of Gold Eagle.
The offer values each Gold Eagle share at C$12.62, a 19 percent premium, based on Wednesday’s closing prices.
Gold Eagle’s shares rose C$1.94, or 18.4 percent, to C$12.51 in early activity on the Toronto Stock Exchange.
Goldcorp’s stock was up 67 Canadian cents at C$40.52, despite the risks associated with the offer and the weak earnings.
The acquisition follows a move by rival gold miner Agnico-Eagle (AEM.TO) last month to buy about 5 percent of Gold Eagle.
“Clearly Agnico-Eagle set off alarm bells and Goldcorp has responded very aggressively,” said Barry Allan, an analyst at Research Capital in Toronto.
With few large gold discoveries in recent years, large miners have tried to boost their pipelines by acquiring smaller players with early-stage properties.
However, Allan noted that Gold Eagle has not yet produced a resource for Bruce Channel, meaning it has not been established how much gold is down there.
He estimates the resource at around 7.6 million ounces, which makes the C$1.5 billion price tag, “significant,” he said.
Allan said Goldcorp’s ownership of the site would make more sense than Agnico-Eagle’s due to Goldcorp’s easier access because of its adjacent Red Lake complex.
Gold Eagle’s board has approved the transaction, the companies said.
Goldcorp, which has operations in Canada and throughout Latin America, lost $9.2 million, or 1 cent a share, in the quarter ended June 30. That compares with a profit of $2.9 million, or nil a share, in the year-before period.
Adjusted earnings were $83.2 million, but were erased by a $91.2 million foreign exchange loss.
Adjusted earnings were 12 cents a share, while analysts had expected a profit of 22 cents a share, before exceptional items.
Quarterly revenue climbed 19 percent to $631.7 million.
The company sold 556,200 ounces of gold in the quarter, up from 546,400 ounces in the year-before period.
Cash costs were $308 an ounce, up from $133 an ounce, with copper and silver production counted against the costs.
Cash margins increased 18 percent to $589 per ounce, as gold prices soared year over year, the company said.
However, the company cut its 2008 production outlook and raised its cash cost estimate.
It now expects to produce between 2.3 million and 2.4 million ounces, down from its previous expectation of 2.6 million ounces. Costs are expected at less than $300 an ounce, up from its previous estimate of $250 an ounce.
Reporting by Cameron French; Editing by Scott Anderson