Denver - A little more than two years ago, the co-founders of a small Canadian mining company unearthed a gold and silver deposit in southeastern Ecuador that industry experts believe is the most significant discovery in at least a decade.
That find has turned into a $1.2bn bid for Aurelian Resources by Kinross Gold, part of an industrywide buying spree that has accelerated as the market value of mining companies has tumbled.
The buyouts are expected to keep coming with major producers looking for new resources and investors seeking shelter from what has become a very volatile market.
Gold has hovered around $900 an ounce, silver around $16.50 an ounce and copper around $3.50 a pound in the past year, but the Toronto Venture Index, which includes mining companies, has fallen 35% at the same time, said Canaccord Adams analyst Wendell Zerb said.
"Despite what could have been a great commodity price environment for junior mining, credit issues and economic concerns have overwhelmed all else," Zerb said Monday.
Major producers are now window shopping for smaller companies and new exploratory rights. A similar spate of deals has occurred in the coal industry, with a growing string of giant acquisitions centered on coking coal, a key raw material for certain steel mills.
Two banner deals in the precious metals sector include the Kinross-Aurelian Resources' union and Goldcorp's $1.46bn bid for Gold Eagle Mines, all Canadian companies.
"Both of those have a component of using the major's equity position so they're issuing stock...an indication that they feel the value of their stock allows them to move in that manner," Zerb said.
Kinross would get control over Aurelian's gold, silver and base metals reserves in Ecuador's Cordillera del Condor region. The deposit, found by Aurelian co-founders Patrick Anderson and Keith Barton, has 13.7m ounces of gold and 22m ounces of silver, both inferred resources.
Aurelian's board has recommended shareholder approve the buyout, and Kinross has mailed details of the offer to shareholders. It expires September 3.
But there are risks in the deal for Kinross, which also mines in the United States, Russia, Brazil and Chile.
Ecuador is in the process of drafting new mining legislation. Kinross chief executive officer Tye Burt told analysts late last month that he believes the current administration supports responsible mining.
A week after the Aurelian bid was revealed, Vancouver-based Goldcorp announced plans to acquire Canada's Gold Eagle Mines for $1.46bn in cash and stock deal.
Gold popular
Industry experts say more buyouts are likely because commodity prices have remained neutral and mining companies always need more reserves.
"It's generally more expensive to go out and buy an existing project than it would be to discover one your own, but the purchase of a project alleviates a lot of the risk," Dundee Securities analyst Paul Burchell said.
Among the precious metals, all can be attractive but gold is considered by many investors as the place to turn during inflationary times, Burchell said.
In a research note published last week, Zerb identified several companies that could be targeted for acquisition, including Andina Minerals, Canplats Resources, Capstone Mining, Detour Gold, and Sherwood Copper Corp.
- AP