Eldorado Gold Corp agreed on Monday to purchase fellow Canadian mining company Integra Gold Corp for C$590 million ($432.4 million) in the latest move by gold miners to opt for less risky geopolitical regions in a lackluster gold market.
Canada's stable legal and taxation system, clear way of getting mining permits and government support for the industry are drawing cards for miners as bullion stays rangebound between $1,100 and $1,300 an ounce, analysts and mining executives said.
The Eldorado cash-and-stock deal values Integra at C$1.21 a share, a 52 percent premium to Friday's closing price. The deal sent Integra's shares soaring 39 percent to C$1.12 on the TSX Venture Exchange on Monday.
Eldorado's stock dropped 7.8 percent to C$4.61.
Eldorado's operations are primarily in Greece and Turkey, where economic outlooks have dimmed and geopolitical risks have increased.
Like Canada, Australia and parts of the United States, such as Nevada, which are home to historic gold mining regions, have been the focus of acquisitions in recent years because of government support, permitting and stability, analysts and mining executives said.
"When investors are not necessarily falling all over themselves to invest in the space, there's a tendency to retrench into the more familiar areas and the lower risk areas," said Macquarie Bank analyst Michael Siperco.
A weaker Canadian dollar, which lowers local costs such as labor, has added to Canada's appeal. Macquarie forecasts the Canadian dollar weakening to 67 U.S. cents by end-2017, which combined with a stronger gold forecast translates into a Canadian gold price of more than C$2,000 an ounce.
Bullion, priced in U.S. dollars, was last trading at $1,229.71.
Vancouver-based Eldorado, which already owned about 13 percent of Integra, said it was attracted to the company's Lamaque project in Canada's Quebec province because of its high grade ore, strong exploration potential and proximity to existing infrastructure.
The high takeover premium, Eldorado's existing Integra stake, and tax synergies lower the risk of a competing bid, Credit Suisse analyst Anita Soni said in a note to clients.
Integra Chairman George Salamis said it was common knowledge that several miners have shown an interest in Integra.
However, Integra shareholders' response on Monday to Eldorado's friendly bid had been "phenomenal," he said.
Recent purchases of gold mining assets in lower-risk jurisdictions include Kirkland Lake Gold's takeover of Australia-focused Newmarket Gold, Goldcorp's purchase of Kaminak Gold and its project in Canada's Yukon and a subsequent staking rush in the Yukon.
($1 = 1.3646 Canadian dollars)
(Additional reporting by Vishal Sridhar in Bengaluru; Editing by Sunil Nair and Bill Trott)