One of China’s biggest gold producers, Shandong Gold Group, has made a $1 billion offer for Brazil’s Jaguar Mining, in one of the country’s biggest overseas acquisitions. Shandong’s offer of $9.30 per share in cash prompted a 47% surge in Jaguar shares on the New York Stock Exchange.
Jaguar says it has received several offers in recent weeks and has since hired financial and legal advisors to assist in exploring the options which will maximize value for shareholders.
A source close to Shandong says the company has prepared cash to close the billion dollar deal. The vice general manager of Shandong, Li Zhongyi, who’s in charge of international deals, has declined to comment.
Banking analysts say it is a positive development for the overall sector, with not many Chinese companies buying overseas gold resources. A precious metals analyst with JP Morgan, Michael Jansen, says acquisitions are on the rise because companies are concerned about the depletion at existing mines and poor new discovery rates and want to increase their reserves. He says Chinese resource companies are in the process of looking overseas for the minerals needed to power the nation’s fast-growing economy.
“Gold companies will tell you they are in the business of expanding mining supply organically, but in reality they are in the business of buying new assets, particularly in the case of many large miners who are struggling to replace lost production,” Michael Jansen says.
Shandong Gold is a state-owned company and one of China’s top three gold miners. Its operations produced 19.41 tonnes of mined gold in 2010, and it owns about 800 tonnes of gold resources.
Jaguar Mining is one of Brazil’s fastest-growing gold producers, with operations in a prolific greenstone belt in the state of Minas Gerais. Jaguar’s main development project is Gurupi, which holds reserves of 2.3 million ounces.
In 2011, about $28 billion worth of acquisitions have taken place in the gold sector, including Newmont Mining’s $2.3 billion purchase of Fronteer Gold and China-based Minmetals Resources planned $1.28 billion takeover of copper miner Anvil Mining.