TORONTO (CP) -- Meridian Gold Inc. [TSX:MNG] is seeking another suitor to defeat a C$3 billion takeover offer led by Canada's Yamana Gold Inc. [NYSE:AUY;TSX:YRI], arguing the cash-and-share bid is too low, too complex and too risky.
''There's an old saying in the mining sector - gold is money, copper is change. This is bad timing for our shareholders, to be swapping our gold for copper,'' Ed Dowling, Meridian's CEO, told analysts in a conference call Tuesday after the company's board urged shareholders to reject the proposal by Yamana, a gold company which also has significant copper production.
''The outlook for base metals is inferior to that of gold,'' Dowling said.
Asked if the company is hunting for another buyer, Dowling replied: ''You can take it for granted that we're doing our job and the board and the management are engaged in a value-maximizing process.''
The board of the Reno, Nev.-based company, which trades on the Toronto Stock Exchange, is urging shareholders to reject the proposal from Toronto-based Yamana Gold and partner Northern Orion Resources Inc. [AMEX:NTO; TSX:NNO], a Vancouver junior that is to be taken over by Yamana.
Yamana, a Canadian gold producer with projects and properties in Brazil, Argentina and Central America, also has significant copper production. Last week, Citigroup analysts raised earnings per share estimates for two major gold companies based on their exposure to copper, Barrick [NYSE:ABX; TSX:HCX] and Newmont [NYSE:NEM; TSX:NMC].
Yamana issued a statement Tuesday arguing its offer is fair.
''Yamana expresses disappointment with the conclusions of the Meridian Board as outlined in the circular, and notes that the circular failed to address the many benefits which Meridian shareholders stand to gain by becoming part of the combination of Yamana, Northern Orion and Meridian, '' the company said in a release Tuesday.
''Yamana believes that there is no new material information concerning Meridian that is not already publicly known and inherent in their share price. Yamana has been offered no new information that would change its view that its offer is full and fair,'' the company stated.
''At the time we made public our intention to launch an offer for Meridian, we laid out several compelling reasons why the combination of these three companies would generate significant value for the shareholders of all three companies. These reasons have not changed. We encourage shareholders to consider these benefits,'' said Yamana's chairman and chief executive officer, Peter Marrone, said in the statement.
''Meridian has also communicated its intention to explore value-maximizing alternatives and Yamana believes that the most attractive alternative is this combination. We continue to welcome the opportunity to discuss this further with Meridian and its shareholders.''
Meridian has said the offer is too conditional and would expose its shareholders to base metals and geopolitical risk.
In an interview, Dowling said the proposed new entity would leave investors with a stock weighted with only 60% precious metals and 40% base metals, primarily copper and molybdenum.
''After careful review, the board has concluded that the Yamana offer does not adequately reflect the value of Meridian Gold's world-class precious metal assets, our successful exploration, development and operating track record and our very attractive development pipeline,'' stated Brian Kennedy, chairman of Meridian's board.
''In addition, Yamana's bid is subject to numerous open-ended conditions and the further uncertainty created by the complex three-way proposed transaction with Northern Orion.''
Meridian stockholders are being offered 2.235 Yamana shares plus $3.15 in cash for each Meridian share. The offer is worth C$30.10, based on Yamana's closing share price of C$12.06 on Monday.
With 101.2 million Meridian common shares outstanding, the bid values Meridian at more than C$3 billion.
If the three-way deal goes through, the combined company would have a stock market value of C$10 billion and projected gold production of 1.4 million ounces in 2009, up from a combined base of 660,000 ounces last year.
The acquisition of Northern Orion by Yamana has the unanimous support of the both boards.
The three-way combination would continue a wave of consolidation in the global gold sector as companies seek acquisitions to cash in on high prices and bulk up to boost output and reserves, instead of spending heavily to develop new deposits and mines.
Meridian operates gold mines in Chile and Nevada and has development and exploration projects throughout the Americas.
Dowling said the company has a 20-year record of discovering, developing and operating gold mines and has the potential to double production and become a leading mid-tier producer.
''Yamana's offer fails to adequately compensate Meridian Gold shareholders for the company's core strengths and growth profile,'' he said.
''In contrast to the value proposition presented by Meridian Gold, the Yamana offer exposes Meridian Gold shareholders to increased risks such as a significantly augmented base metals exposure, project development and financing concerns, greater geopolitical risk and potential future shareholder dilution.''
Meanwhile, Meridian was grilled by analysts during the call over its Esquel project in Patagonia, Argentina, which is on hold due to a three-year mining ban by the province of Chubut, of which two years still remain. Critics have accused Meridian of handling the project badly.
Meridian acquired the asset through its 2002 takeover of Brancote Holdings PLC, which owned high-grade gold deposit estimated at three million ounces of gold at an average grade of 8.5 grams per tonne.
''Ultimately, it's going to take an industry-government partnership'' to save the project, Dowling said in an interview.
Meridian shares closed up 35 cents to $30.07 on the TSX, while Yamana closed down 25 cents to $11.81. Orion closed down 14 cents to $5.70.
(c) The Canadian Press 2007
