To the Victor Go the Golden Spoils

From the plundering conquistadors of the 16th century, to those unscrupulous few who looted gold from Egypt's National Museum amid the fog of this year's revolution, gold has stood throughout history as one of the coveted spoils of war, conflict, or chaos.

Another sort of battle has gripped the boardrooms of three gold miners operating in Mexico, and to the victor will go the spoils of Capital Gold (AMEX: CGC  ) .

Gammon Gold (NYSE: GRS  ) received a fresh iteration of unanimous support from Capital Gold's board Thursday, after Gammon raised the cash portion of its friendly bid to $1.09 per share of Capital Gold. At Gammon's current share price, the revised offer amounts to nearly $5.60 per Capital Gold share, and a healthy 47% premium over Capital's share price prior to Gammon's initial bid unveiled last October.

Gammon's eleventh-hour revision to its bid -- mere days before a shareholder vote that had been scheduled for March 18 -- came as a necessary rebuttal to an ongoing hostile challenge from Timmins Gold (OTC BB: TMGOF.PK). Timmins raised its own offer this week to 2.27 shares and $0.25 in cash for each Capital Gold share. With an 8% intraday surge Friday to reach $2.74, Timmins' offer carries an implied value of $6.47 per Capital Gold share (15% greater than the current implied value of Gammon's bid). Sprott Asset Management, which owns a 12.5% stake in Capital Gold, has indicated its backing for the Timmins proposal, and Sprott Resource Lending Partnership even chipped in a modest credit line and working capital facility to aid the effort.

When Capital Gold shareholders finally decide their fate in a rescheduled vote on April 1, one of these suitors will walk away with an attractive conquest that features the producing El Chanante gold mine. The mine's 1.5 million ounces of gold in reserves would grow Timmins' war chest of gold reserves by nearly 200%, while doubling Gammon's gold stash to more than 3 million ounces (alongside meaningful silver reserves of 71 million ounces). For Timmins, the fact that the company has staked 95,000 hectares of mining concessions along a corridor between its flagship San Francisco mine and the nearby El Chanante operation presents an enticing opportunity to develop a district-scale gold play.

I have selected Gammon Gold as my top stock pick for 2011, believing as I do that Gammon represents a powerful turnaround story in the making ... regardless of the outcome of these competing bids. As a Gammon Gold shareholder, I will keep my Foolish fingers crossed for a successful friendly bid.

Following an objective examination of the two competing bids, however, I am compelled to reverse my prior assessment, and submit that Timmins Gold may ultimately succeed in swiping these golden spoils from Gammon's grasp with its seemingly higher-value bid and the potential for a district-scale play. When Goldcorp (NYSE: GG  ) maneuvered expertly -- with an assist from New Gold (AMEX: NGD  ) -- to deny rival Barrick Gold (NYSE: ABX  ) 's bid for a stake in a Chilean gold project last year, we witnessed first-hand how intense the competition for high-quality gold assets has become.

Personally, I will be rooting for Gammon, because I have skin in the game, but I concede that Timmins may have gained the upper hand in this battle. If you're interested in Gammon as well, add Gammon Gold to My Watchlist, your free, personalized portfolio tool.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Gammon Gold, Goldcorp, and New Gold. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On March 18, 2011, at 8:33 PM, Dintaurran wrote:

    I'm hoping another reason for the postponement is GRS reports earnings 3/28. If they post a blowout quarter, that should help close the gap between their bids.

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