Amidst the Gold Gloom M&A is Heating Up Again
Kitco Commentaries | Opinions, Ideas and Markets Talk
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Since last Sunday afternoon, while investors continue to sell most of their junior resource stock holdings in panic fashion, there have been three high-profile merger/acquisitions announced in the complex. What is most encouraging is the fact that two of these deals were large premium, all-cash offers for juniors who have been developing high-margin deposits.
On June 17th, BHP spin-off South 32 entered into an agreement to buy out the remaining 83% of Arizona Mining it doesn't already own in an all cash offer to shareholders. The offer price of C$6.20 per share represents a 50 per cent premium to the closing price on 15 June and implies a total equity value for Arizona Mining of US$1.6 billion. Directors and officers of Arizona Mining, who own 34 per cent of the common shares on issue, have entered into voting support agreements and the directors of Arizona Mining entitled to vote, have unanimously recommended to their shareholders that they vote in favor of the transaction. The deal will give the Australian based miner 100% ownership of the Hermosa Project in Santa Cruz County, Arizona, which contains the high-grade base metals Taylor deposit. South32 said it expects to complete the transaction in the September quarter and the deal is subject to shareholder approval.
On the following Monday, after the market close, Bonterra Resources announced that they have entered into a binding letter of intent dated June 17, to combine Bonterra and Metanor which would create a new advanced Canadian gold exploration and development company focused on building out and future mining development of the Urban Barry Quebec Gold Camp. “The Transaction” contemplates that Bonterra will acquire all of the issued and outstanding common shares of Metanor for C$0.73 in equity consideration, at an exchange ratio of 1.6039 Bonterra shares, for each Metanor share. This represents an aggregate transaction value of C$78 million on a fully diluted in-the-money basis. Upon completion of The Transaction, existing Bonterra and Metanor shareholders will own approximately 58% and 42% of the pro forma company. The purchase price represents a 40% premium to the volume weighted average price of Metanor's common shares on the TSX Venture Exchange on June 15, 2018 and a premium of 30% to the closing price on this date. The acquisition is expected to be completed in the third quarter of 2018.
The third deal this week was a recommended all cash offer by Orion Mine Finance to acquire the remaining 79.6% of Dalradian Resources Inc. it does not already own on early Thursday morning. Under the terms of the Arrangement Agreement, each Dalradian shareholder will receive cash consideration of C$1.47 for each Dalradian Share held (the “Consideration”), valuing Dalradian’s total equity at approximately C$537 million, on a fully diluted in-the-money basis. The Consideration represents a 62% premium to the closing price of the Dalradian Shares on the Toronto Stock Exchange on June 20, 2018 and a 49% premium to the volume weighted average price (“VWAP”) of the Dalradian Shares over the last 30 trading days. Dalradian controls the world class Curraghinalt Gold Project located in Northern Ireland.
I am especially encouraged to see all-cash deals happening again in the space, as these arrangements become an instant pay day for speculators at the offered price. With many quality juniors being discounted this month, mid-tiers and majors, many of which need new projects to replace their reserves and resources, could continue to be in a buying mood. These companies, whose margins on gold production have not kept pace with the rise in the gold price over the last 12 years, are looking for low-cost projects, which means the right combination of grade and infrastructure.
As I type this missive late Wednesday evening, gold has hit the $1260 target I warned may happen quickly in last week’s column and is attempting to bounce off this level in overseas trade. The selloff in bullion is becoming very oversold on a daily basis and many juniors have been experiencing capitulation selling, which has created waterfall declines in their respective charts. This is a sign we may be getting close to a significant bottom in gold stocks.
I am currently travelling to the Yukon for the annual Yukon Mining Alliance (YMA) Site Visit, so this column is appearing a day early. I will have a report from the trip when I return next week.
Recently, there have been many quality junior resource stocks being sold by impatient investors, creating opportunities for speculators with cash and patience. It takes a lot of time and effort to find these opportunities and it is best to be on the hunt for them when the gold space is out of favor. When this sector turns, the stock prices in the quality issues move up quickly, so if you require assistance in choosing the best quality juniors to invest, please stop by my website and check out the subscription service at http://juniorminerjunky.com/