Bucking trend, Leagold ready for shopping spree
Conventional wisdom suggests “buy low, sell high” is the best strategy.
But as gold prices surge to new peaks daily, and some companies hang back from acquisitions, Leagold Mining Corp.’s chief executive Neil Woodyer believes he has found a loophole to this age-old adage: In about a one-year timespan, he has built a Latin Americafocused intermediate by snapping up assets that larger companies cast aside.
This week, the Vancouver-based company announced an estimated $264 million shareholder-supported takeover bid of Brio Gold, which controls a series of mines in Brazil, and which Yamana Gold once owned but has been selling off since 2016. The deal mimics Leagold’s $350 million acquisition of the Los Filos Mines in Mexico from Goldcorp in April 2017, in that both assets were deemed non-core by more senior mining companies.
“We manage in a different way from a major mining company,” Woodyer said in an interview. “Not better but different.”
Between the two deals, Leagold expects to produce as much as 475,000 ounces of gold in 2018, with production ramping up to 700,000 ounces by 2020.
That puts its gold production on the trail of better-known companies such as B2Gold, which produced 630,000 ounces in 2017, or Yamana Gold, which not including Brio’s production put out 977,000 ounces — although it also has significant silver and copper production.
Still, with gold climbing towards a four-year high, hitting US$1,366 an ounce on Thursday before shedding some of those gains, other executives have hit pause on acquisitions.
“There’s going to be more competition (to acquire) some of these assets,” B2Gold’s chief executive Clive Johnson told the Financial Post earlier this month.
Woodyer is undeterred. He and billionaire Frank Giustra founded Leagold in late 2016 while gold
We manage in a different way from a major mining company. Not better but different.” Neil Woodyer, CEO, Leagold Mining
prices were high. And Woodyer says they honed the current strategy — acquiring assets from seniors and individual mining companies — while running Endeavour Mining Corp., which the duo built into a multibillion dollar company with gold mines through East Africa during the past decade.
“The idea is we learned a lot doing that; let’s apply it in other jurisdictions,” he said.
By eliminating committees and other institutional bureaucracies that can add millions of dollars per yer in costs, Woodyer said he can keep overhead low and optimize value on his assets.
But Leagold’s stock goes up and down. It was trading at about $3.00 on Thursday, down from its 52-week high at $3.4o in September.
Still, it has a market cap of about $450 million. Woodyer and Giustra hold a combined 9 per cent and Goldcorp owns nearly 23 per cent.
Plus, Leagold is offering to exchange each Brio Gold share for 0.92 of its own shares, at an implied price of $2.80 — a 57 per cent premium to its trading price at the time of annoucement.
Yamana, which is supporting the deal and owned roughly half of Brio Gold, will emerge as a substantial holder in Leagold after the sale, scheduled to close Feb. 28.
Woodyer said Leagold’s ability to raise money means it can continue snapping up assets in Mexico and Brazil.
And what if gold prices keep rising?
“I’m not qualified to talk about gold,” Woodyer said, adding, “The best hedge against price is to make sure you’re a low-cost producer.”