Gammon Gold to acquire Capital Gold for $288 million

Two Mexico-focused gold miners, Canada's Gammon Gold Inc, has proposed acquiring US miner Capital Gold Corporation in the latest consolidation in the precious metal mining sector amid soaring bullion prices.

Gold prices continue on their extraordinary run-up, closing at a new record high of $1316 an ounce Friday in Comex, registering a 30-per cent growth over the year.

Under the terms of the cash-and-stock transaction, Gammon will buy all of the outstanding shares of Capital Gold valued at approximately $288 million or $4.57 per Capital Gold share, based on Gammon's closing price of $7.26 on 24 September 2010 on the New York Stock Exchange (NYSE).

The shareholders of Capital Gold will get 0.5209 shares of Gammon and $0.79 in cash for each share they own. The offer price represents a 20-per cent premium to the closing price of Capital Gold on 24 September on NYSE.

New York-based Capital Gold is a gold exploration and production company with assets in Mexico. Its main property is the El Chanate gold mine in Sonora, which is projected to produce up to 70,000 ounces of gold in fiscal 2011. In addition, the company has an exploration project in Orion in the state of Nayarit.

For the financial year ended 31 July 2010, Capital Gold produced around 55,700 ounces of gold at cash costs of $400 an ounce, which is below the industry average. The company's gold reserves are estimated at around 1.5 million ounces.