Batista Gold Bid Has Brazil's Richest Man Making Explorers Cheap: Real M&A

Billionaire Eike Batista. Photographer: Adriano Machado/Bloomberg

If Brazilian billionaire Eike Batista gets his way by acquiring Vancouver-based Ventana Gold Corp. for about C$1 billion ($1 billion), he will make other North American companies that develop the metal’s deposits look cheap for would-be acquirers.

The bid from Brazil’s richest man values Ventana at about $434 for each of the estimated 3.5 million ounces of gold at its La Bodega project in Colombia, the second-highest among 68 U.S. and Canadian exploration companies tracked by RBC Capital Markets. Batista is offering 8.3 times the value of Ventana’s assets, the most expensive cash deal of $1 billion or more for a gold company in the past decade, according to data compiled by Bloomberg.

Batista is betting the quality of La Bodega’s ore will set it apart from rival projects after bullion’s surge to a record drove acquisitions in the industry to the highest level since at least 1998 last year. Osisko Mining Corp., the developer of a Quebec mine, and Detour Gold Corp., seeking to build a project in Ontario, are trading at as much as 81 percent less than Ventana per ounce of gold and 67 percent cheaper based on total assets, data compiled by RBC and Bloomberg show.

“Pretty much every gold company that we have a relationship with is thinking about M&A,” said Jason Neal, Toronto-based co-head of metals and mining at BMO Capital Markets, an adviser on $27 billion of gold-mining deals in the past year. “There’s a very high level of evaluation going on.”

Third Parties

Batista, 53, who bought his first gold mine at age 24, already controls about 20 percent of Ventana. His AUX Canada Acquisition Inc. bid C$12.63 for the rest of the company on Nov. 17. Ventana rejected it on Dec. 23, saying the offer was “inadequate and opportunistic and fails to recognize the full value of Ventana.” The Canadian company said Feb. 8 it was in talks with “third parties” to find a higher bid.

The offer expires tomorrow at 8 p.m. Toronto time.

At C$12.63, the bid valued Ventana at a 32 percent premium to its average price during the previous 20 days, according to data compiled by Bloomberg. That’s less than the average 39 percent for completed or pending gold takeovers of more than $1 billion in the past decade and in line with the 33 percent premium for terminated deals, the data show.

Ventana rose 7 cents to C$12.28 on the Toronto Stock Exchange on Feb. 11, extending its advance during the past year to 42 percent, more than double the 20 percent gain in Canada’s Standard & Poor’s/TSX Composite Index. Batista’s offer price is 2.9 percent above Ventana’s current level, data compiled by Bloomberg show.

World’s Richest Man

La Bodega, located 400 kilometers (249 miles) northeast of Bogota, may generate 301,000 ounces of gold a year for its first six years of production, according to the company’s website. Mexico’s Carlos Slim, named the world’s richest man by Forbes Magazine, said in an interview at Bloomberg News headquarters in New York last week he’s seeking to boost his investments in Colombia because of the country’s mineral assets.

Batista is betting on La Bodega after his Rio de Janeiro- based shipbuilder OSX Brasil SA sank 45 percent since its March initial public offering. He shelved plans for an IPO of his Rio de Janeiro-based EBX Group Ltd. investment company in April.

“On a per-ounce basis the bid seems high, but there’s likely more gold in the ground,” said Michael Fowler, a Toronto-based analyst at Loewen, Ondaatje, McCutcheon Ltd. who has a “speculative buy” on Ventana shares. “The grade is good and overall it seems to be a quality project.”

Best Choice

The offer from Batista’s AUX remains the “best choice” for Ventana shareholders as “no alternative transactions have materialized,” AUX said in a statement on Feb. 11. His EBX said in an e-mail to Bloomberg News yesterday that it would not have any further comments until the expiration of the bid.

Richard Warke, Ventana’s chairman, didn’t return a call to his office outside of normal business hours.

Batista’s offer values Ventana at 8.3 times total assets, the second-highest among 20 deals for gold miners worth more than $1 billion during the past decade and the most expensive all-cash acquisition, data compiled by Bloomberg show. The bid is 12.6 times Ventana’s book value, the third-highest level of the past 10 years, the data show.

Goldcorp Inc. of Vancouver, the second-biggest Canadian gold producer, offered 21 times assets and 23 times book value for Andean Resources Ltd. The A$3.6 billion ($3.6 billion) deal last month was the most expensive of the past decade on both measures, data compiled by Bloomberg show.

‘Shrewd and Capable’

“Eike’s a shrewd and capable businessman,” Don Poirier, a Vancouver-based vice-president of corporate development at Hecla Mining Co., said yesterday in a telephone interview. His bid for Ventana “may influence how much investors are willing to pay for other high-quality assets,” he said. “He’s created significant wealth over decades and I’m sure he’s acutely aware of this project’s potential.”

Osisko and Detour are both trading at cheaper levels than Ventana. Montreal-based Osisko is valued at $205 an ounce, while Detour of Toronto trades at $81 an ounce. The average of the 68 companies RBC tracks is $71 an ounce.

RBC said Osisko and Detour are among its favorite picks from the group. Both have “large” deposits that have attracted investors’ attention, Michael Curran, an analyst at Toronto- based RBC, said in a Jan. 27 note. Osisko is trading at 2.7 times its total assets and Detour at 3.5 times, data compiled by Bloomberg show.

John Burzynski, Osisko’s vice-president of corporate Development, and Gerald Panneton, Detour’s chief executive officer, could not be reached for comment.

Higher Premiums

The value of gold-mining deals has surged with the metal’s price. There were 91 takeovers of bullion companies worth $26.9 billion last year, compared with 96 deals for $5.7 billion in 2009, according to data compiled by Bloomberg. The average premium paid rose to 50 percent, the highest level since at least 1998, data compiled by Bloomberg show.

Gold reached an all-time high $1,431.25 an ounce in London trading on Dec. 7 and closed at $1,357.05 on Feb. 11.

A lack of supply growth may affect gold more than industrial metals including copper and zinc, said David Garofalo, chief executive officer of Toronto-based HudBay Minerals Inc., which produces all three. Exploration companies - - known in the industry as junior miners -- raise funds to locate and evaluate deposits and typically seek a takeover or equity investment by a larger company with experience in operating a mine.

‘The Juniors’

“The senior gold producers have largely co-opted their grass-roots exploration efforts to the juniors,” Garofalo said in an interview on Jan. 25. “So they have to take out the juniors to fill their development pipelines.”

Newmont Mining Corp., the largest U.S. gold producer, said Feb. 3 it agreed to buy Vancouver-based Fronteer Gold Inc. for C$2 billion, including net debt, to gain exploration and development projects in Nevada. Newmont of Greenwood Village, Colorado, is paying 4.3 times Fronteer’s book value, 3.9 times its assets and a premium of 41 percent, according to data compiled by Bloomberg.

Kinross Gold Corp. of Toronto, which bought Red Back Mining Inc. for C$8 billion in September, offered 5 times Vancouver- based Red Back’s book value, data compiled by Bloomberg show.

‘Fastest Growth’

That purchase was criticized for being too expensive. RiskMetrics Group Inc., an adviser to investors, said Kinross shareholders should vote against the deal because the company would have to achieve “significantly higher” output at Red Back’s Tasiast project in Mauritania compared with the market consensus to break even. Kinross may update investors on the gold at Tasiast when it reports fourth-quarter earnings Feb. 16.

Tasiast “gives us the fastest growth profile in the industry today,” Kinross CEO Tye Burt said Jan. 26 in an interview at a TD Newcrest mining conference in Toronto. “The other majors are going to look at that and say gee, perhaps we need to do some things as well. That will put a little pressure on them.”

There have been 2,769 deals announced globally in all industries this year, totaling $229.5 billion, a 9.5 percent increase from the $209.6 billion in the same period in 2010, according to data compiled by Bloomberg.

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net.

To contact the editors responsible for this story: Simon Casey at scasey@bloomberg.net; Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net.