China’s Zijin wins over Canadian miner Continental Gold with US$1 billion cash offer
- North American firm’s shares rose as much as 11 per cent in Toronto on Monday after successful takeover by Fujian-based group
- Deal will give Zijin control of Continental’s Buritica gold project in Colombia, which is currently being developed
Cash is king and will be hard to top by a rival bidder, according to the head of Continental Gold, which agreed to a C$1.37 billion (US$1 billion) takeover offer from China’s largest listed producer of mined gold.
Continental’s shares rose as much as 11 per cent in Toronto on Monday after the offer from Fujian-based Zijin Mining Group was announced. That is in contrast to Kirkland Lake Gold, whose shares plunged 17 per cent on November 25 after it made an all-stock US$3.7 billion takeover bid for Detour Gold.
“Cash bids are very rare in the gold mining space and we delivered one,” Ari Sussman, chief executive officer of Toronto-based Continental, said in a phone interview on Monday. Only a handful of gold miners would be able to pull it off, he said.
The deal is the latest in a flurry of consolidation in the mining industry. Barrick Gold took over Randgold Resources, and Newmont Mining acquired Goldcorp last year, and smaller miners are hurrying to keep up and stay in the game.
Speculation has long-brewed that Continental was a takeover target. Sussman said he started shopping the company after Newmont’s acquisition of Goldcorp in January, figuring that Newmont, which owns 18.4 per cent of Continental, would have its hands full with Goldcorp and be looking to get rid of noncore assets.
Zijin will pay C$5.50 a share for Continental and said Newmont was supportive, according to a statement. The deal will give Zijin control of Continental’s Buritica gold project in Colombia, which is currently being developed. Continental share were trading at C$5.36 at 1.55pm in Toronto, up almost 10 per cent.
“There were obviously multiple levels of interest” for Continental, Sussman said. In terms of a possible rival bid, he thinks “Anything is possible but it’s tough to beat the bid number.”
Last year, Prime Minister Justin Trudeau’s government blocked a proposed C$1.2 billion (US$934 million) takeover of construction firm Aecon Group by a unit of China Communications Construction, citing security concerns associated with Chinese investment.
It “would be very far-fetched” to have any pushback for this deal, Sussman said. “Maybe that question would have been more valid if our asset was in Canada,” he added. “This is more China coming to Colombia as governments are supportive of each other.”
Gold miner Zijin stands out as overseas acquisition pioneer
Steven Butler, an analyst at GMP Securities, said the value of the deal was less than hoped for but he does not see a superior offer for Continental forthcoming “given the geopolitical risk associated with Colombia, the potential working capital-funding risk and the all-cash nature of the deal”.
Sussman thinks it’s a good time to sell as risks build heading into production.
“Look at the laundry list of companies which have gone into production in last five years and look at the challenges they faced,” he said. “We thought this would be the right time, for someone with deep pockets, to take over our excellent team.”
