Klondex jumps 61% on flurry of merger news
Gold sector showing signs of heating up TRADITIONAL SILVER PRODUCERS SEEM TO BE ADDING GOLD.
TORONTO• A flurry of new deals announced Monday suggests that mergers and acquisitions among junior mining companies, particularly in the gold space, could be heating up after several slow months.
In t he biggest mining deal announced so far this year in Canada, the 127- year old Idaho-based Hecla
Mining Co. proposed what it estimated as a US$ 462 million cash- and- share acquisition of Nevada- based
Klondex Mines Ltd. — both listed on the TSX Venture exchange.
That deal, as well as Vancouver- based Alio Gold’s proposed $ 128- million cash acquisition of Vancouverbased Rye Patch Gold, are adding fuel to a junior merger space that has been quiet: Thus far, in 2018, there have been just six mergers in Canada’s metals and mining sector compared to 19 at this time in 2017, according to Financial Post data.
Phillips Baker Jr., chief executive of Hecla, said his company has been in discussions with Klondex management about a deal for the company’s Nevada mines since December, and the deal was unrelated to gold prices or any short term trends.
“We have assets that we keep for decades,” Baker said. “Whether prices are going to be higher or lower over the short- term, I don’t know.”
If the deal goes through as planned, Hecla would acquire all three Klondex gold mines i n Nevada, which have an annual production of around 150,000 ounces. That would raise the company ’ s annual gold pro- duction to around 370,000 ounces, plus 10 million ounces of silver, according to company spokesman Mike Westerlund.
Klondex shareholders can elect to receive either US$2.81 or 0.6272 of a Hecla share; alternatively, they can elect to receive a combination of 81 cents and 0.4136 of a Hecla share.
If shareholders approve the deal, gold would account for about 50 per cent of Hecla’s revenue — up from about 40 per cent, according to Baker. The company reported $ 577 million revenue in 2017 from mines in Quebec, Alaska and Mexico and also produces lead and zinc.
Brian Quast, an analyst with BMO Capital Markets, noted that silver is often considered more speculative than gold and may face competition for i nvestor capital from cryptocurrencies and cannabis plays.
“All of the traditional silver producers seem to be adding gold,” Quast said.
Klondex shares jumped 61 per cent to $ 2.91 Monday afternoon on the Toronto Stock Exchange. The shares have been down since at least February 2017, when they peaked at $7.57.
Meanwhile, Alio Gold’s proposed acquisition offers Rye Patch shareholders $ 1.57 per share — a 35- pecent premium to its 30- day trading average — and will create a company with an estimated 165,000 ounces of annual gold production in 2018 from two mines in Mexico and Nevada.
Quast said the deal made sense in that it will strengthen Alio’s cash balance sheet, which will help it obtain better debt financing as it seeks to develop its Ana Paulo gold project in Mexico.
In a third deal announced Monday, two junior gold exploration companies would combine: Anaconda Min
ing Inc. has proposed to pay 14 cents per share for all outstanding shares of Maritime Resources Corp. —a 40- per- cent premium to its closing price on Friday.
Neil Woodyer, chief executive of Leagold, which is working to close a roughly $ 263 million acquisition of Brio Gold announced earlier this year, believes a wave of mergers are coming as junior miners seek to lower their risk profile by diversifying.
“I think you’re going to see intermediate’s getting better,” Woodyer said on Monday. “I think we’ ll see more consolidation in the junior end just because of risk management, and the cost of capital.”