Eldorado to buy Sino Gold for $2 billion

TORONTO/SYDNEY Wed Aug 26, 2009 11:52am EDT

TORONTO/SYDNEY (Reuters) - Canada's Eldorado Gold Corp (ELD.TO) said on Wednesday it will buy Sino Gold Mining Ltd SGX.AX for C$2.0 billion ($1.84 billion) in an all-share deal that will more than double the size of its gold production in China.

China is already the world's largest producer of gold, but gold consumption within the country has surged, and China is expected to overtake India as world's largest consumer of gold in 2009.

The acquisition of Australia and Hong Kong-listed Sino Gold will boost Eldorado's annual gold production to about 550,000 ounces, from 330,000 ounces. The deal also expands the company's project pipeline with annual production expected to rise to 850,000 ounces by 2011 and over 1 million ounces by 2013.

Analysts were not surprised by the proposed deal, as Eldorado had already acquired Gold Fields' (GFIJ.J) 19.8 percent stake in Sino Gold a month ago, fueling speculation about a full takeover. Under Australian laws, a company acquiring 20 percent stake in another is required to make a full takeover bid.

"We do not foresee an alternate offer for Sino. Eldorado is the only significant North American gold producer with an existing operating presence in China and a desire to grow that presence," said Credit Suisse analyst Michael Slifirski, in a note to clients.

Sino Gold shareholders will receive 0.55 Eldorado shares for each share held. The offer is worth about A$7.24 per Sino Gold share, a premium of 21.3 percent, based on the companies' closing share prices on Tuesday. Sino Gold shares were halted from trade on Wednesday.

Eldorado said the merger would create a global gold producer with combined market capitalization of about C$6.4 billion.

The transaction has been unanimously recommended by Sino Gold's directors, but it remains subject to approval by Sino Gold's shareholders.

Eldorado said it will seek to establish an Australian listing of Eldorado shares, so that Sino Gold shareholders can hold the Eldorado shares they receive on the Australian Securities Exchange.

After completion of the transaction, current Eldorado shareholders will own about 75 percent of the merged company and current Sino Gold shareholders, excluding Eldorado itself, will own about 25 percent.

"(Eldorado's) production growth profile is similar to Sino, so Sino shareholders can draw some comfort from retaining exposure to a asset base with very similar average growth, but increased operation and country diversity," said Slifirski.

In addition to China, Eldorado currently has operations in Turkey, Greece and Brazil.

Eldorado plans to keep its headquarters in Vancouver, British Columbia. But it also intends to retain a large regional office in Sydney, Australia, on consummation of the deal.

Eldorado said it will invite two directors from Sino's board to join its own board of directors. Sino Chief Executive Jake Klein will remain in his position until the deal closes, after which he will provide consultancy services to Eldorado.

The two companies expect the deal to close in December this year.

Macquarie Capital acted as Eldorado's financial adviser on the deal, while Goldman Sachs JBWere acted on behalf of Sino Gold.

Eldorado's shares were down 3.9 percent at C$11.50 in morning trade on the Toronto Stock Exchange.

($1 = C$1.09 = A$1.19)

(Additional reporting by James Regan in Sydney and Ajay Kamalakaran in Bangalore; Editing by Frank McGurty)

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