Silvercorp’s OreCorp bid to trigger more deal talks at Kalgoorlie’s Diggers and Dealers conference

More mergers and acquisition activity is on the agenda for gold miners, including Perseus Mining which is cashed up and ready to spend. Picture: David Gray, AFP.

Mergers and acquisitions activity in the gold space is already shaping up to be one of the central topics of conversations at the Australian annual mining conference Diggers and Dealers this week, as OreCorp fields a $240m buyout proposal from Canada’s Silvercorp Metals.

As the Australian mining community settle in for a week of networking in Kalgoorlie for the iconic conference, known as the place where numerous buyout proposals get thrashed out, OreCorp came out on Monday and told the Australian Securities Exchange that it had signed a deal with Canadian miner Silvercorp to receive 15c a share and 0.0967 of Silvercorp shares for each OreCorp share held, implying a value of 60c per share, or an equity value of about $240m.

The deal has been backed by OreCorp’s board.

But now questions are being asked what this means for the $2.4bn, Australian listed Perseus Mining, which DataRoom understands had been running the ruler over OreCorp before the latest deal was announced.

Yet the company’s chief executive, Jeff Quartermaine, is known to be disciplined on price.

Perseus has three operating gold mines in West Africa, including two in the Cote d’Ivoire and one in Ghana, and is awash with cash after its operations have produced huge amounts of gold at a time the price for the commodity remains strong.

The discussion in the mining community is that mergers and acquisitions are set to remain squarely on the agenda for Perseus, given it is holding large amounts of cash and after it had told the market that its project in Sudan was on hold.

Perseus, fourth largest gold miner on the ASX, generated 500,000 ounces of gold last year at $US1000 an ounce, and is outstripping Australian miners which mine at higher costs.

Cash at the end of June was $US522m or $785m.

Yet based on the value of gold that African gold miners are producing, Perseus and its Australian peers operating in the region are being undervalued by the Australian listed market due to the operating risks in African countries due to the political instability in many.

Perseus announced in June that its Meyas Sand Gold Project, of which it bought 70 per cent for $200m and is located in northern Sudan, has been placed on hold due to an escalation of armed conflict largely in and around Khartoum between the Sudanese Armed Forces and an influential militia group, the Rapid Support Force.

It has withdrawn employees and deferred its Final Investment Decision.

The price for the OreCorp transaction is a 31.5 per cent premium to OreCorp’s closing share price of 43.5c on August 4 when its market value was $174m.

OreCorp holds an 84 per cent interest in the Nyanzaga Gold Project in Tanzania.

It says the Silvercorp transaction will create a diversified, highly profitable precious metals company with a $US630m market value and a robust growth pipeline and exposure to a highly prospective emerging mining jurisdiction.

The group says Silvercorp has the balance sheet strength to fund exploration of Nyanzaga and pursue mergers and acquisition opportunities.

Also part of the deal for Silvercorp to buy OreCorp is a $28m placement to advance its Nyanzaga Gold Project in Tanzania.