China’s Zijin Min­ing con­tin­ues Cana­dian as­sets shop­ping spree

Toronto com­pany Con­ti­nen­tal Gold sees $1.4B buy­out as a way to help mit­i­gate risk

Ottawa Citizen - - Fp - GABRIEL FRIEDMAN

TORONTO China’s Zijin Min­ing Co. Ltd. on Mon­day ex­tended its shop­ping spree of Cana­dian ju­nior min­ing as­sets, an­nounc­ing a $1.4-bil­lion all-cash pur­chase of Toronto-based Con­ti­nen­tal Gold Inc. at a 29-per-cent pre­mium to its share price dur­ing the past month.

Through the deal, Zijin, a di­ver­si­fied miner with gold, cop­per and zinc as­sets, gains Con­ti­nen­tal’s prized Bu­rit­ica project, a mine that’s un­der con­struc­tion just out­side Medellin, Colom­bia that’s ex­pected to pro­duce roughly 300,000 ounces of gold per year be­gin­ning in 2020.

The move fol­lows Zijin’s $1.86-bil­lion takeover in late 2018 of Nev­sun Re­sources Ltd., a Cana­dian ju­nior miner that was de­vel­op­ing a cop­per-gold project in Ser­bia.

It also comes as the price of gold has risen 15 per cent since June to about US$1,464 per ounce, that has spurred a flurry of merg­ers, as­set sales and in­vest­ments in Canada’s pre­cious metal ex­plo­ration space.

Paul Be­gin, chief fi­nan­cial of­fi­cer of Con­ti­nen­tal Gold, said his com­pany had de­cided to sell now given that other com­pa­nies with a sin­gle gold mine have run into var­i­ous op­er­a­tional and se­cu­rity is­sues in re­cent years.

Even though gold prices are ris­ing, he said it made sense from a risk-mit­i­ga­tion perspectiv­e to take Zijin’s buy­out of­fer now, which took months to ne­go­ti­ate.

“I think we’re all bullish on the price of gold in the long term, but no­body has a clue in the short term,” said Be­gin.

“What if gold prices go down US$150 dur­ing ramp up?”

“Zijin doesn’t have any ex­pe­ri­ence in Colom­bia, and we have ob­vi­ously had some in­ci­dents in the past,” Be­gin told Reuters.

“But if a ma­jor se­cu­rity in­ci­dent hap­pened at any project, it would be con­sid­ered a ma­te­rial ad­verse change and they would have an out if they wanted to,” he said.

Although the com­pany has sev­eral ex­plo­ration projects, its Bu­rit­ica project had at­tracted in­ter­est from in­vestors in­clud­ing a $33-mil­lion in­vest­ment in June by the bil­lion­aire Eric Sprott, who pur­chased 10 mil­lion shares, or about five per cent of the com­pany, at $3.10.

Bu­rit­ica was about 76 per cent con­structed as of July, ac­cord­ing to Con­ti­nen­tal’s web­site.

With a 14-year mine life, Bu­rit­ica is ex­pected to pro­duce around 300,000 ounces of gold per year at an all-in sus­tain­ing cost of $600, which qual­i­fies it as a lower cost pro­ducer.

Be­gin said Con­ti­nen­tal had opened its data room to pos­si­ble suit­ors as a de­fen­sive mea­sure af­ter Colorado-based New­mont Gold­corp Corp. pur­chased a 20-per-cent stake in the com­pany in 2017 for US$109 mil­lion.

Be­gin said they wanted to know what other com­pa­nies would be will­ing to pay for its shares in case

New­mont ever bid for the com­pany.

That never hap­pened, how­ever, and Be­gin said, “Zijin made us an of­fer we couldn’t refuse.”

Un­der the deal, Zijin will pay $5.50 per share, which rep­re­sents a 29-per-cent pre­mium to the vol­ume-weighted av­er­age price dur­ing the past month.

It is also a 13-per-cent pre­mium to Fri­day’s clos­ing price, but the stock had shot up 16.7 per cent last week, from $4.17 to $4.87.

Con­ti­nen­tal closed Mon­day at $5.39 up 10.7 per cent in Toronto.

“We ex­pect a pos­i­tive re­ac­tion from Con­ti­nen­tal shares fol­low­ing the an­nounced agree­ment,” Mark Mi­hal­je­vic, an an­a­lyst with RBC Do­min­ion Se­cu­ri­ties, wrote on Mon­day.

Be­gin said that the key to the deal was that Zijin agreed to pay all­cash, a rar­ity in the pre­cious met­als sec­tor where most ma­jor merg­ers have been pri­mar­ily stock-based trans­ac­tions.

He said he thinks New­mont was dis­tracted by its pur­chase of Van­cou­ver-based Gold­corp for $10 bil­lion ear­lier this year, and has been fo­cused on its newly ex­panded port­fo­lio of mines. Last week, for ex­am­ple, New­mont sold Gold­corp’s Red Lake mine to Aus­tralia’s Evo­lu­tion Min­ing Ltd. for $375 mil­lion.

New­mont’s for­mer chief ex­ec­u­tive Gary Goldberg had also ex­pressed con­cerns about Con­ti­nen­tal’s abil­ity to en­sure the se­cu­rity of its work­force, af­ter the com­pany faced three sep­a­rate at­tacks that re­sulted in 10 fa­tal­i­ties.

“The se­cu­rity of the peo­ple around the project … does not cur­rently meet our ex­pec­ta­tions,” Goldberg said in an Oc­to­ber 2018 earn­ings call.

Ac­cord­ing to a news re­lease, New­mont has agreed to sup­port the deal with Zijin, which will re­turn roughly $260 mil­lion to the com­pany.

A spokesman for New­mont de­clined to pro­vide fur­ther com­ment.

The trans­ac­tion re­quires ap­proval by two-thirds of Con­ti­nen­tal’s share­hold­ers and is ex­pected to close early next year.

The deal marks the sec­ond ac­qui­si­tion of a Cana­dian gold miner in as many weeks as min­ers look to boost re­serves and take ad­van­tage of firmer bul­lion prices.

Last week, Canada’s Kirk­land Lake Gold Ltd of­fered to buy De­tour Gold in an all-stock deal val­ued around $4.3 bil­lion.

The deal also re­quires Cana­dian and Chi­nese govern­ment ap­provals, Be­gin said.

Canada last year blocked a pro­posed $1.5-bil­lion takeover of con­struc­tion com­pany Ae­con by Chi­nese state builder China Com­mu­ni­ca­tions Con­struc­tion Co Ltd on na­tional se­cu­rity grounds. Fi­nan­cial Post

With files from Reuters

I think we’re all bullish on the price of gold in the long term, but no­body has a clue in the short term.

JU­LIA SYMMES COBB/REUTERS FILES

Zijin has been at­tracted to ris­ing gold prices and Toronto-based Con­ti­nen­tal’s prized Bu­rit­ica mine in Colom­bia.

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