UPDATE 2-Canada's Fronteer Gold to buy explorer AuEx

Mon Aug 30, 2010 12:18pm EDT

* Fronteer to get full control of Long Canyon project

* To form new exploration company

* AuEx shares jump 38 pct; touch 6-year high

* Fronteer shares slip 5 pct (Adds conference call details, updates share movement)

Aug 30 (Reuters) - Fronteer Gold Inc FRG.TO agreed to buy gold and silver exploration company AuEx Ventures Inc XAU.TO for about C$238.2 million ($226 million) in cash and stock, plus shares in a new exploration company, to get full control of the Long Canyon gold exploration project in Nevada.

"Long Canyon is our flagship asset and owning 100 percent of it is important," Fronteer Chief Executive Mark O'Dea said on a conference call with analysts.

"Consolidated, it's a project that is going to contribute significantly to our net asset value moving forward."

Fronteer -- which currently owns and operates 51 percent of Long Canyon, a high-grade, open-pit mineable deposit -- will acquire AuEx's 49 percent interest in the project.

The deal also strengthens Fronteer's position in the Pequops areas, which is at the very heart of an emerging gold trend in eastern Nevada, O'Dea said.

Fronteer will gain a 49 percent stake in the West Pequop property, which has an initial indicated resource of 64,138 ounces. The project is 51 percent owned and operated by Canadian gold miner Agnico-Eagle Mines (AEM.TO).

U.S. gold futures for December delivery GCZ0 rose 20 cents to $1,238.10 an ounce on Monday. [ID:nLDE67T0MQ]

Under the court-approved plan of arrangement, AuEx shareholders will receive 0.645 of a Fronteer share, 66 Canadian cents in cash and 0.5 of a share in a new exploration company, for each AuEx share.

Excluding the shares of the new exploration company and based on Fronteer's Friday closing price, the offer values AuEx at about C$6.07 a share, a premium of 35 percent to its Friday close.

Nevada-based AuEx had 39.3 million shares outstanding as of Aug. 26, according to Thomson Reuters data.

The new exploration company will own all of AuEx's exploration assets outside of the Pequops District and have C$5 million in cash. These assets include AuEx's Buffalo Canyon, Green Monster and Hays Canyon projects in Nevada.

On completion of the deal, AuEx shareholders will hold 18.6 percent of the proforma outstanding shares of Fronteer, and 90.1 percent of the new exploration company. Fronteer will hold the remaining stake of the new exploration company.

AuEx shares, which have risen 36 percent in the past three months, were up 29 percent at C$5.79 Monday during afternoon trade on the Toronto Stock Exchange. They touched a high of C$6.20 earlier in the session.

Vancouver-based Fronteer's shares were down 5 percent at C$8.01.

($1=1.054 Canadian Dollar) (Reporting by Isheeta Sanghi in Bangalore; Editing by Anne Pallivathuckal)