Precious Metals

Gold Producer Jaguar Mining Explores Alternative Merger Options

Precious Metals

Jaguar Mining said on Wednesday it has signed confidentiality agreements with several parties announcing it was engaging in a strategic review process to “explore alternatives”.

By Dave Brown – Exclusive to Gold Investing News

The appetite for gold resources continues to gain momentum in 2012. Gold investors will be accustomed to reading about strong demand for gold resources by a number of Chinese state-owned gold producing companies. 

Last week, Chalice Gold (TSX:CXN,ASX:CHN) agreed in principal to an offer totaling as much as $100-million for its 60 percent interest in the Zara gold project in Eritrea. In November, Shandong Gold Group Co. (SHA:600547) launched an unsolicited offer for Jaguar Mining Inc. (TSX:JAG,NYSE:JAG) valued at $785 million.

Jaguar Mining said on Wednesday it has signed confidentiality agreements with several interested parties as the company engaging in a strategic review process to explore alternative merger opportunities. The committee guiding the company’s strategic review will be led by Gil Clausen and include the gold mining industry expertise of Gary German and John Andrews. A further news release from Jaguar announced the appointment of Rogério Fernandes as Chief Operating Officer, following the retirement of Lúcio Cardoso at the end of January.

Street consensus lacks visibility

First Asset Investment Management Inc senior portfolio manager John Stephenson said in December following on news of the very sudden departure of the Chief Executive Officer that it was likely the reported Chinese bid would be successful. Institutional Equity Research Analyst at Cormark Securities Richard Gray offered that “the board of directors may find a nice, easy, cash offer the better way to go” in a note to clients in November. The market has responded positively to the most recent news as the share prices have appreciated 4.8 percent since the announcement.

Weather conditions challenging

Fabiana Weycamp, meteorologist with Brazil’s Climatempo weather-forecasting service recently discussed with the Wall Street Journal the excessive precipitation in the state of Minas Gerais. Jaguar’s gold operations are located in the Iron Quadrangle region, near the city of Belo Horizonte in the state of Minas Gerais. Since October the region has experienced a “South Atlantic convergence zone, which has led to the presence in the region of a heavy cloud layer resulting in persistent rains. While this is a normal phenomenon for the Brazilian summer, this year the convergence zone’s impact was heightened by the presence of colder than usual waters off the coast of Espirito Santo and Rio de Janeiro states.” Although there has not been any revision on production guidance from Jaguar, other mining interests have announced problems. With Belo Horizonte city receiving more than twice the monthly average rainfall in December, a Vale SA (NYSE:VAL)press officer said that not only iron-ore production but also transport had been affected by the rains.

Safe haven status returning for gold

Matt Grossman, Chief Equity Market Strategist at Adam Mesh Trading Groupsays gold has returned to safe haven status as Europe languishes. With a bullish outlook on gold, he says it will break the $2,000 per troy ounce range, “When things get worse in Europe gold tends to move higher. In the end of 2011 what we saw was funds taking profits, and in addition there was a desire to raise cash because of the tight credit situation in Europe. Now we are really reverting back to the trade that we have seen for a long time. When people are scared they like to put their money in gold.”


Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.

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