Goldcorp & Rubicon - It looks like the perfect marriage, doesn't it?

Check original post on my website at http://valuations.webs.com

As I indicated in this post, Goldcorp will be spending $330 million of the $840 raised to pay a revolving facility and the remaining $510 for CAPEX and general corporate purposes. Personally, the $510 million looked like a big number for CAPEX so most of it may be going towards 'general corporate purposes'.

But what is 'general corporate purposes'?

The only plausable explanation I have is that general corporate purposes = merger or acquisition

So I started looking for potential acquisitions. In finding this small fish, three factors guided my search:

1. The enterprise value of the company target company should be no more than $600. My reasoning is that GG has $510 million extra from the debt issue and has some cash on hand.
2. A junior gold company with significant reserves and exploration.
3. A junior gold company that is close to GG's current gold operations. This will drive costs down for GG

After countless searching, I believe I found GG's next acquision to be Rubicon Minerals (AMEX: RBY). Rubicon Minerals Corporation is a Canada-based mineral exploration-stage company that explores for commercially viable gold and base metal deposits. The reasoning behind my conclusion:

1. Its enterprise value is around $460 million ($516 million market cap - $56 million cash, no debt, no prefered equity and no minorty interest). So if GG bids for $510, it would be offering a 10.9% acquisition premium.
2. RBY has just discovered excellent grade ores close to Red Lake.
3. RBY operates very close to GG's operations in Red Lake, Ontario. If GG would acquire RBY, there would not be any significant incremental costs from the larger operation, in fact, there would be potential savings due to synergies.

Since 10.9% is not an enough premium, I believe that GG needs to offer around $600 million (30% premium) to RBY for a successfull acquisiotn. Therefore, I am including RBY in my buy list with a target of $4.

Keep reading my blog for updates.

Iyad Atuan

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