March 15, 2011 / 6:15 PM / 7 years ago

WRAPUP 2-Fight for Capital Gold's El Chanate mine heats up

* Timmins Gold has support of Sprott Asset Management

* Values Capital Gold at $5.89 per share

* Gammon Gold counters by sweetening its offer

* Key asset at play is El Chanate gold mine in Mexico (Adds comments from Gammon. In U.S. dollars unless noted)

By Pav Jordan

TORONTO, March 15 (Reuters) - Rival suitors for New York-based miner Capital Gold raised their takeover bids on Tuesday, opening another chapter in a fight spurred by soaring gold prices for the El Chanate mine in Mexico.

Vancouver-based Timmins Gold TMM.V, armed with the backing of one of Canada’s top resource investors, raised its offer for the company to the equivalent of $5.89 per Capital Gold CGC.A share. The offer comprises 2.27 Timmins common shares plus $0.25 in cash.

Larger rival Gammon Gold GAM.TO responded soon after by raising the cash component of its offer to $1.09 per Capital share, plus 0.5209 of a Gammon common share.

With 61.37 million Capital Gold shares outstanding, the Timmins offer would value Capital at about $361 million, while the Gammon offer would value it at about $335 million, although those values vary considerably as share prices rise and fall.

Gammon says its offer is more compelling, starting with the fact that Capital Gold shareholders would only have to pay tax on the share component of its bid because Gammon is also listed in the United States.

In an interview with Reuters, Gammon Chief Executive Rene Marion also pointed to the greater liquidity of his company’s stock, a stronger cash position and exposure to silver as other reasons shareholders should opt for the Gammon offer.

“We are not concerned whatsoever with the Timmins deal activity today,” he said by telephone.

The race for El Chanate, Capital’s gold mine in the northern Mexican state of Sonora, which is projected to produce between 65,000 and 70,000 ounces in fiscal 2011, is emblematic of increased dealmaking in the sector as gold prices hover near record highs.

Spot gold XAU= was trading around $1,391 an ounce on Tuesday, more than five times its price a decade ago.

    Last month, Newmont Mining (NEM.N) agreed to buy Fronteer Gold Inc FRG.TO for C$2.3 billion, extending its presence in the western United States.

    Timmins, which owns the San Francisco open-pit gold mine in northern Mexico, is renewing its bid for Capital Gold after being rebuffed repeatedly by the company’s board, which recommended in December that shareholders accept Gammon’s earlier offer.

    Last month, Capital Gold cut off talks with Timmins, apparently bringing the takeover battle to an end, until this week when Sprott Asset Management (SII.TO), considered to be among Bay Street’s shrewdest investors, lent its support to Timmins.

    Sprott, which has the largest single voting block in Capital Gold, with 12.5 percent of the shares, said on Monday it would vote all of its shares in favor of the Timmins offer.

    “In light of our increased offer, we urge the board of Capital Gold to determine that our new proposal is superior to the Gammon offer and to withdraw its support for the Gammon transaction,” Timmins Chief Executive Bruce Bragagnolo said in a statement.

    Capital Gold stock was down 0.77 percent at C$5.17 on Tuesday afternoon in Toronto, where gold-mining issues were slumping along with the rest of the market due to the crisis in Japan. Timmins fell 2.48 percent to C$2.36, while Gammon Gold was off 6.27 percent at C$8.07.

    Capital also owns the Orion development project in Nayarit province. Gammon owns the Ocampo property in Chihuahua state, also in northern Mexico, as well as the El Cubo property further south.

    Either way, the shareholders will not likely vote on a deal for at least another 10 days after the new offers are officially presented.

    $1=$0.98 Canadian Reporting by Pav Jordan, additional reporting by Euan Rocha; editing by Rob Wilson and Peter Galloway

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