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Yamana has agreed to pay the shareholders of Extorre $4.26 for every share, $3.50 of which will be in cash. The remaining part of the consideration would be satisfied by issuing 0.0467 of a Yamana common share for each common share of Extorre.
Yamana is purchasing Extorre at a 54% premium on Extorre’s 20-day volume weighted average price ("VWAP") and at an 18% premium on the 60-day VWAP for the period that ended on June 15, 2012. The deal is valued at around $395 million and is expected to be closed in August this year.
Extorre seems to be a strategically apt acquisition for Yamana. Extorre has a number of development projects under its jurisdiction, of which, Cerro Moro is the most advanced. Cerro Moro has high grade gold and silver deposits in Santa Cruz, Argentina. It has 1.36 million ounces of gold equivalent indicated mineral resources and 1.05 million ounces of gold equivalent inferred mineral resources, which enables Yamana to strengthen its development pipeline further.
Yamana follows a strategy of bolt-on acquisitions wherein it scouts for smaller companies that present organic growth prospects and can be scaled up to yield better production and higher returns. The acquisition of Extorre is a result of this particular strategy.
Management is quite optimistic about the results of this deal. In the company’s opinion, even though the deal value is just 3% of Yamana’s market capitalization, it is capable of pushing its gold production higher by 10%. In addition, it is expected that Extorre will contribute cash flows which are better than the deal value to market capitalization multiple.
Yamana, which competes with AngloGold Ashanti Ltd. (AU - Snapshot Report), Goldcorp Inc. (GG - Analyst Report) and Kinross Gold Corporation (KGC - Analyst Report), holds a Zacks #3 Rank, reflecting a short-term (1 to 3 months) Hold rating.
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