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Thanks to poster 'Ludwig von Mises'

dinsdag 5 augustus 2008 - 9:37

Chasing gold at home
Agnico and Goldcorp aren't butting heads in Red Lake--not yet

Peter Koven, Financial Post Published: Saturday, August 02, 2008


When Agnico-Eagle Mines Ltd. invested in a junior exploration company
called Gold Eagle Mines Ltd. six weeks ago, it turned a lot of heads.

After all, Gold Eagle was operating right next to mining giant Goldcorp
Inc. in Ontario's Red Lake camp, and Goldcorp was always seen as its
eventual buyer.

On top of that, Goldcorp is the dominant player in Red Lake. By putting
$50-million into Gold Eagle, Agnico showed the world that it was willing to
take on one of the big boys in its own backyard.

What most people did not know was that Agnico had already claimed much of
that backyard for itself.

In a transaction last March that went almost unnoticed, Agnico picked up a
whopping 72,220 acres of land for exploration in Red Lake. That makes it the
single biggest property holder in the area, with even more land than
Goldcorp itself, which holds a little more than 40,000 acres (not including
joint-venture land), according to Intierra Resource Intelligence.

The property was optioned to Agnico from mining consultant Michael Dehn, a
former Goldcorp employee who had little trouble finding an interested
buyer.

"I looked at the project size and said there are only three or four
companies that would consider getting into it," he says. "The
first guys I took it to, I sold it."

If Goldcorp feels threatened by a major mining company entering its domain,
it isn't showing it. The company agreed to buy Gold Eagle on Thursday for
$1.5-billion, effectively reclaiming dominance over Red Lake.

But Agnico's move into Goldcorp territory speaks to a bigger issue: It is
getting harder and harder for the major companies to keep growing. As a
result, they are going to continue to butt heads as they turn over the big
gold camps for new discoveries or acquisition targets.

"Because there's less opportunities and less choices in a
consolidating industry, people aren't going to sit back," says Ian
Telfer, Goldcorp's chairman.

"Everyone's going to pick their targets and do everything they have to
do to try and get a deal done. The gentility may be going out of what is a
friendly, co-operative industry."

This isn't a new development. Big mining companies wage hostile battles for
juniors all the time, and it is not uncommon for them to be working in or
around the same camps. Goldcorp moved into Agnico's territory in Quebec a
couple of years ago when it bought Virginia Gold Mines Inc.

The difference now is that a shrinking number of opportunities in
politically safe countries like Canada means that the majors are certain to
clash more often, according to experts.

Catherine Gignac, an analyst at Wellington West Capital Markets, points out
that in recent years, many companies realized it was getting tougher to make
discoveries in North America. As a result, they headed to other corners of
the world but it has often backfired as they faced political risk and other
challenges.

"A few years ago, it was easy for companies to go global. They saw
that nobody was looking around Romania, Venezuela, Ecuador. And now they've
realized, 'Gee, it's not that easy,' " she says.


Agnico and Goldcorp separated themselves from that pack by sticking to
politically safe countries and still carving out impressive growth. But by
limiting themselves to safer places, it is only natural that many of the
same assets would catch their attention.
Ontario-based Red Lake, for example, is right up Agnico's alley. It is one
of the world's highest-grade gold districts and requires the same kind of
underground mining that the company already conducts next door in Quebec.
The only surprise, perhaps, is how long it took Agnico to get into
Goldcorp's backyard.

"I don't think there is any turf out there that belongs to any company
exclusively," says David Garofalo, Agnico's chief financial officer.
"We're all trying to find economic mineralization, and we'll follow our
noses in that regard."

That means that the shrinking group of junior companies with good gold
deposits in safe jurisdictions will generate more interest than ever from
the big producers.

In Canada, consolidation has whittled that group down to a very few names,
including Detour Gold Corp., Osisko Mining Corp., San Gold Corp., Lake Shore
Gold Corp., Rainy River Resources Ltd., and Comaplex Minerals Corp.

It should thus come as no surprise that Agnico recently bought a 15.6%
stake in Comaplex, a small exploration firm working way up in Nunavut.

"As long as they fill out our core criteria, which is low political
risk with good development potential, we'll go where the good gold zones
are," Mr. Garofalo says.

One of those is Red Lake, where Agnico can look forward to fending off
mosquitos as it drills out some of the 70,000-plus acres it has staked in
the months and years ahead.

This is untouched land that nobody else wanted. But Mr. Dehn, the Red Lake
expert, thinks it could hold vast riches --potentially much more than the
Gold Eagle discovery that triggered this week's $1.5-billion bid from
Goldcorp.

"I would think there are still at least 20 or 30 million ounces [of
gold] to be found on the old properties at Red Lake, and probably that much
more [in the land] that the juniors have and that Agnico has at the fringes
of the camp," he says.