be in a few years with GNH.

Battle brewing between Canadian gold miners

A takeover battle is brewing between Canadian gold companies Goldcorp Inc. and Eldorado Gold Corp. over the U.S. owner of a promising mine in Argentina.

Goldcorp. said Friday it had found a "perfect fit" for its operations after striking a friendly deal to acquire U.S. gold miner Andean Resources Ltd. (TSX:AND) for C$3.6 billion.

The agreement, approved some two years after Goldcorp (TSX:G) first began tracking Andean's exploits, beat out Eldorado (TSX:ELD, which had just hours before announced its own $3.4-billion acquisition bid.

Vancouver-based Eldorado responded by saying it plans to take its "full-value proposal" directly to Andean's shareholders, although it provided few details of its strategy.

Goldcorp's executives remained enthusiastic about their bid, which secured the unanimous support of Andean's board and a lock-up agreement from a shareholder that owns 21 per cent of Andean's shares.

The deal is expected to close later this year or in early 2011.

"Goldcorp has been built on these tip of the iceberg acquisitions over time and we believe that we have identified another," Chuck Jeannes, Goldcorp's president and CEO, said in a conference call.

Andean stock surged Friday, closing up $2.17, or just over 45 per cent, at $6.98. Goldcorp stock was down $1.69, or more than 3.5 per cent, at $44.49 in trading of more than 4.3 million shares, while Eldorado was off 64 cents, or three per cent, at $19.89 on almost 4.8 million shares.

Under terms of Friday's deal, each Andean common share will be exchanged for 0.14 of a Goldcorp share or $6.50 in cash, up to a maximum of $1 billion in cash.

Shareholders can choose stock, cash or a combination of both.

Andean's main asset is the Cerro Negro gold project in Argentina, estimated to contain at least 2.5 million ounces of gold and 23.6 million ounces of silver.

Goldcorp says the cash and share transaction will add to its global gold mining portfolio of projects in North, Central and South America.

"We've come to know this asset very well and the more we learn the more apparent it became that Cerro Negro would be a perfect fit in Goldcorp's portfolio," Jeannes told analysts.

He said the acquisition will enhance its growth profile in the nearer and longer term as production grows and more veins of ore are confirmed on the 215 square kilometre property.

Production is set to begin in 2012 but the discovery of additional deposits could eventually double or triple production.

"We're not buying Andean for a three million ounce resource. It will grow and with that growth will come the opportunity to significantly expand the throughput that was identified in the existing feasibility study."

Cerro Negro is a high-grade, near-surface system that is expected to generate significant gold and silver production at low operating costs, which in turn would reduce Goldcorp.'s average cash costs.

Andean, based in Utah, is listed on the Toronto and Australian stock markets. It acquired the Cerro Negro gold deposit in southern Argentina in 2004.

Wayne Hubert, Andean's CEO, said the deal benefits both companies and allows for the development of Cerro Negro into a key gold project.

"This is a bittersweet day for me and for the Andean team," Hubert said from Salt Lake City. "Difficult to let go of a project as great as Cerro Negro, particularly after all the effort that the Andean team has put into it over the last four years."

He said the board unanimously concluded the timing was right for Goldcorp "to take up the baton at this point and develop an exceptional project into a world class mine we know it will become."

The competing Eldorado bid would see each Andean share exchanged for 0.31 of an Eldorado share, valuing the company at $3.4 billion based on Thursday's closing stock price. This was a 62 per cent premium to Andean's 20-day volume-weighted average share price on the Toronto Stock Exchange.

The proposal would see Andean shareholders own approximately 24 per cent of the combined company.

"The other proposal that has been made recently provides only nine per cent of the resulting entity, a significant difference that I think is worthy of consideration," Eldorado president and CEO Paul Wright said in a later conference call.

Eldorado said it has not yet received any response to its latest proposal, which was submitted on Aug. 30. A proposal submitted earlier in the month had been rejected by Andean's board.

"We believe an Andean combination with Eldorado will offer investors the single best golden investment vehicle on the planet," he told analysts.

Eldorado is a low-cost gold producer with operations in China, Turkey, Brazil and Greece.

Wright said the company is small enough where a single positive drill hole can results in a significant increase in the company's stock price.

"We believe that Cerro Negro will enhance these attributes. This being said, Cerro Negro is a good-to-have asset for Eldorado, not a need-to-have asset."

Asked how and when it will compete for Andean shareholder support, Wright said the company would preserve its options.

Steven Green of TD Securities said Goldcorp's offer looks expensive based on recent transactions but likely reflects the high-grade nature of the deposit and the presence of at least two bidders.

But John Ing of Maison Placements said Goldcorp's high bid price reflects the company's assessment of the site's potential and the likelihood that the gold market will continue to rise.

"We're in the silly season," he said in an interview.

"What we are seeing is an increase in M&A (merger and acquisition) activity and for some of these companies it's better to buy ounce than explore."

Ing said he believes a possible war between the Canadian companies will peter out since Eldorado's Wright has proven to be very disciplined in the past.

"I would be surprised if they even matched or countered this very rich price."

Moody's Investors Service affirmed Goldcorp Inc's Baa3 foreign currency Issuer rating with a stable outlook.

Under terms of the agreement, Goldcorp will earn a one per cent break fee if Andean proceeds with a higher offer. The company also retains the right to match other offers.

The friendly agreement reached Friday isn't the first time Goldcorp has scooped up assets from one of its competitors.

Earlier this year, Goldcorp was embroiled in another dramatic acquisition when it stepped in and bought a controlling interest in the El Morro gold-copper project in Chile from junior miner New Gold Inc. (TSX:NGD).

The deal agitated Barrick Gold Corp. (TSX:ABX), the world's largest gold producer, which had already announced last October that it had struck an agreement for the property with Anglo-Swiss mining giant Xstrata.

However, Goldcorp had lent $463 million to New Gold, which had the right of first refusal on the property. Under that agreement, New Gold exercised its right for an additional $50 million in cash from Goldcorp.

The final deal gave Goldcorp 70 per cent of El Morro while New Gold retained its 30 per cent holding.

Barrick has since launched a lawsuit that alleges the deal is illegal.