Under the deal, announced last night, Sino Gold shareholders will be offered 0.55 Eldorado shares for each Sino share, which values Sino at around $A2.2 billion or $7.24 per share, based on Eldorado’s share price yesterday.
Sino’s largest shareholder, Eldorado is based in Toronto and currently has a market capitalisation of around $US4.4 billion, gold reserves of 7.6Moz, resources of 16Moz and a 330,000oz production profile.
In a conference call this morning, Sino chief executive Jake Klein said the deal offered a 21.3% premium to Sino’s closing share price on August 25 and a 32% premium to Sino’s three-day volume weighted average price.
He said the implied price was higher than Sino’s share price over the past year and higher than the top end of all consensus forecasts for the company.
“It seemed to be a fair deal which we support that ought to be put to shareholders,” he said.
The merger will create a company with a market cap of around $US6 billion, reserves of 12Moz and resources of over 23Moz.
Combined production will come to 550,000oz from four mines in 2009, with the new company targeting 83% growth to 850,000oz by 2011 from six mines.
“We are putting two proven teams together and [the new company] will have tremendous financial strength to deliver on growth opportunities,” Klein added.
After the merger, Eldorado will maintain an Australian listing and a Sydney office, giving the merged entity a listing locally as well as in Canada and on the New York Stock Exchange.
Sino shareholders will gain around 25% ownership in the new Eldorado.
Klein, who will step down as Sino CEO when the deal is complete, said the merger fitted with Sino’s long-term goal of becoming a “China-plus-one” company, and the new entity would be a China-plus-three miner and explorer.
Eldorado is the only other foreign company to operate a Chinese gold operation besides Sino’s Jinfeng and White Mountain mines. The Canadian company’s other mine is in Turkey and it has development prospects in Turkey, Greece and Brazil, giving the merged entity geographical diversification, Klein added.
The merger is expected to be wrapped up in December if 50% of Sino shareholders approve the deal and vote 75% of shares in favour of it – excluding Eldorado’s 20% stake in Sino.
Eldorado bought the stake from South African company Goldfields only three months ago.
There is a break fee of $A21 million payable on both sides.
The deal requires Foreign Investment Review Board approval, which Klein said should not be an issue. Chinese regulatory approvals should not be needed.
Shares in Sino last traded at $5.97 and were still in a trading halt this morning.
Shares in Eldorado were at $C11.38, down 58c on the Toronto bourse, and $US10.37 on the NYSE.
