Ventana falls into Batista's open arms

Ventana falls into Batista's open arms

Peter Koven

Financial Post

14 February 2011

With no better options on the horizon, Ventana Gold Corp. negotiated a friendly takeover bid with Brazilian billionaire Eike Batista that was well below the lofty expectations of investors.

On Monday, the Vancouver-based miner accepted an offer worth about $1.5-billion in cash (or $13.06 a share) from AUX Canada Acquisition Inc., one of Mr. Batista's companies. It was a meager 3.4% premium to AUX's original hostile bid last November. At one point, the stock traded over $14.00 on speculation of a much higher offer.

After Mr. Batista's initial bid, Ventana opened its data room and numerous gold miners took a look. But none decided to make a rival offer. With time running out and the AUX offer close to expiring, Ventana struck the friendly deal.

"I think it's a low bid, but it's obvious that they haven't got anyone else at the moment," said Michael Fowler, an analyst at Loewen Ondaatje McCutcheon.

There is still time for a counterbid. But assuming it does not happen, Mr. Batista is poised to get Ventana and its Colombia-based La Bodega project for roughly 1.1 times net asset value, experts said, which is well below the valuations placed on recent gold mergers.

Sources pointed to a few reasons why other companies were reluctant to bid: the La Bodega project is at an early stage, some miners are still reluctant to get into Colombia, and Mr. Batista simply scared everyone away.

"It sounds like people were afraid of competing with Eike. He's an unknown commodity with deep pockets. People worried that the sky is the limit for him," one source said.

Losing a bidding war is a bad idea right now, because investors have punished other miners that did so. Last September, Eldorado Gold Corp. lost out in a takeover battle for Andean Resources Ltd., and it has still not recovered the premium valuation it enjoyed before that.

Forbes Magazine lists Mr. Batista, 53, as the world's eighth richest man with an estimated net worth of US$27-billion. He has been an investor in Ventana since July 2009, and is known for both his vast resource empire in Brazil and his outsized personality.

He bid for Ventana right after it announced an initial resource estimate and scoping study results for La Bodega last year. That is sooner than most gold companies would feel comfortable bidding for an undeveloped asset.

The study showed that La Bodega holds 3.5 million ounces of gold in inferred reserves. Mr. Fowler suspects that number could be doubled, which would bring Mr. Batista's acquisition price down to around US$200 an ounce.

Ventana's La Bodega project lies next to Greystar Resources Ltd.'s Angostura project in Colombia. However, there has not been much speculation that Mr. Batista will acquire Greystar as well and consolidate the region. Angostura is at a higher elevation than La Bodega, and investors are confused about whether Angostura can meet government regulations and be developed under the current mine plan.