China's SD Gold cuts deal to buy Hope Bay
To acquire full ownership of TMAC resources for $149 million
Last updated 5/8/2020 at 7:01am
The Hope Bay gold mine will come under Chinese ownership with the finalization of a deal that would see Shandong Gold Mining Co. Ltd. buy full ownership of TMAC Resources Inc., the current owner and operator of the gold operation in the Kitikmeot region of northwest Nunavut.
Under a definitive agreement announced on May 8, Shandong Gold Mining (HongKong) Co., an overseas subsidiary of the state-owned Chinese gold mining company, will pay roughly US$149 million (C$208 million) to acquire all of TMAC's shares.
TMAC said SD Gold's financial wherewithal would be good for the future of Hope Bay and, as a result, for Nunavut and Canada.
"SD Gold, as one of the world's largest gold producers, has the financial strength, technical capability and long-term vision to maximize the value of the Hope Bay camp," said TMAC Resources CEO Jason Neal.
TMAC acquired Hope Bay in 2012 and poured the first gold at a newly developed gold operation there in 2017. The new mine has been beleaguered by difficulties that began when the recovery circuits did not function as well as expected.
Though the company has made incremental improvements to the mill and mine, the operation had not reached its full potential.
The Hope Bay operation produced 139,510 ounces of gold from ore that averaged 9 grams per metric ton gold and at a recovery rate of 82% during 2019. The mill processing rate last year averaged 1,620 metric tons per day.
In March, TMAC published the results of prefeasibility study for an expansion of the operation to 4,000 metric tons per day. The cost for this upgrade is estimated to be around US$491 million (C$683 million).
While the prefeasibility study was being finalized, the company launched a strategic review of the best path forward for the mine and company, a process that led TMAC to SD Gold.
"Hope Bay is a highly prospective high-grade gold camp which requires substantial investment to optimize production and extend mine life and maximize the value of the camp to the benefit of all stakeholders," said Yumin Chen, chairman and controlling shareholder of Shandong Gold Group. "We look forward to completion of the transaction and the opportunity to invest in the project for years to come as the generational potential of the camp is unlocked."
SD Gold has agreed to acquire all TMAC's shares at C$1.75 each, which is a 52% premium to TMAC's 20-day volume-weighted average price as of May 6.
This deal has garnered the approval of Resource Capital Funds and Newmont Corp., as well as TMAC directors and officers, which collectively hold roughly 58.6% of the current outstanding TMAC shares.
Kitikmeot Inuit Association, which represents the Inuit people in western Nunavut, also tentatively support the transaction.
"KIA supports the Hope Bay project and all of the benefits it has brought and will bring to Kitikmeot Inuit and, subject to KIA conducting its own due diligence, would be supportive of a sale of TMAC to SD GOLD if KIA determines the proposed sale satisfies KIA's mandate," said KIA President Stanley Anablak. "KIA's mandate is to manage Inuit-owned lands and resources to protect and promote the social, cultural, political, environmental, and economic well-being of Kitikmeot Inuit."
SD Gold indicates that it ready to meet those mandates.
"We have been impressed by TMAC's strong relationships with its local stakeholders and responsible management of environmental and safety aspects of mining, and intend on demonstrating the same commitment as the owner and future developer of Hope Bay's assets," said Chen. "We look forward to working closely with all stakeholders and local communities in Nunavut to deliver a world-class operation that will benefit the regional economy for generations to come."
SD Gold's acquisition of TMAC is expected to be finalized following a TMAC shareholder meeting to vote on the transaction in June.