China, U.S. investors take the long view
Spurred by economic woes of global pandemic, foreign firms with deep pockets grab plum mining assets in Canada's North
Last updated 5/28/2020 at 10:06am
Until novel coronavirus ignited a global pandemic that plunged the world economy into recession, foreign investors, except for a lucky few, have salivated from afar over the bountiful mineral riches that others are mining in the vast reaches of Canada's northern territories.
But with COVID-19 on the march and no cure or proven vaccine for the deadly malady in sight, traditional sources of capital markets have dried up, leaving many mining companies, especially those with costly, remote mines and projects, wanting for much-needed working capital.
Savvy operators with deep pockets, especially ones that can afford long-term payoffs, are moving into the breach left by the flight of capital.
Two such companies, China-based SD Gold and The Washington Companies of Missoula, Mont., reported major moves in May to acquire two of the richest active portfolios in Canada's North – TMAC Resources Inc.'s Hope Bay gold project in northwestern Nunavut and Dominion Diamond Mines ULC's diamond mines and projects in Northwest Territories, respectively.
Gold producer bids for Hope Bay
TMAC May 8 reported board-approved plans to be acquired by Shandong Gold Mining Co. Ltd., also known as SD Gold, through its overseas subsidiary Shandong Gold Mining (HongKong) Co., Ltd., in a deal valued at about US$149 million on a fully diluted basis.
One of the world's largest gold producers by market capitalization, China-based SD Gold would purchase all of the outstanding shares of TMAC for $1.75 per share, which represents a premium of 52% to TMAC's average share price as at May 6.
TMAC also said Resource Capital Funds, Newmont Corp. and directors and officers of TMAC collectively holding roughly 58.6 percent current outstanding TMAC common shares support the transaction.
The deal culminates a strategic review process that began in January, according to TMAC President and CEO Jason Neal.
"Over the past several months, SD Gold has completed a significant due diligence review of TMAC, including a site visit to Hope Bay earlier this year. 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," Neal added.
On May 22, TMAC also reported that SD Gold is also making an equity investment of about US$15 million in the company to support the cost of TMAC's annual sealift this summer, by buying 12 million common shares of the company in a private placement.
Yumin Chen, chairman of Shandong Gold Group Co., the controlling shareholder of SD Gold, said his company regards Hope Bay as 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.
"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," Chen said. "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."
Chen also said his company looks 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."
Stanley Anablak, president of the Kitikmeot Inuit Association said KIA supports the Hope Bay Project and all of the benefits it has brought and will bring to the Kitikmeot Inuit and, subject to KIA conducting its own due diligence, would be supportive of the transaction if KIA determines the proposed sale satisfies KIA's mandate.
The Hope Bay Goldbelt sits mostly on Inuit Owned Land controlled by KIA and the Nunavut Tunngavik Inc., which together could expect to receive about C$400 million in royalties, mineral taxes and other payments over the mining camp's current life expectancy.
In addition, KIA owns more than 1 million shares of TMAC stock.
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.
TMAC shareholders were expected to vote on the sale at a special meeting in June, and approval of the transaction is subject to at least two-thirds of the votes cast by shareholders, along with customary approvals of Canadian courts, regulators, the Toronto Stock Exchange and relevant authorities in China as well as customary closing conditions.
The deal also gives SD Gold the right to match any competing offer and both SD Gold and TMAC would be entitled to a termination fee equal to US$12.5 million under certain circumstances.
Investor eyes NWT diamond mines
Washington April 22 said it agreed to acquire substantially all of Dominion, the third-largest diamond producer in the world by market value, for about US$126 million in cash and the assumption of substantially all of Dominion's operating liabilities.
The U.S.-based company is privately held by a group of North American mining, industrial and transportation companies founded by industrialist and entrepreneur Dennis Washington.
Three years ago, Washington Cos. made an initial unsolicited cash offer for Dominion of US$13.50 per share, which led the diamond company to put itself up for sale after rejecting that offer. An affiliate of Washington eventually acquired Dominion in November 2017 in a transaction valued at US$14.25 a share.
On April 22, Dominion filed for insolvency protection from its creditors after world diamond markets closed due to the coronavirus pandemic and it suspended operations at the Ekati Diamond Mine in March.
The Washington Cos. also agreed to provide Dominion up to US$60 million in short-term debtor-in-possession financing.
Dominion said the proposed acquisition by Washington Cos. will enable the company to deliver on its plans to resume mining operations at Ekati and safely recall its furloughed workers as the spread of COVID-19 subsides and diamond markets reopen as well as assure the company's employees, suppliers and Northwest Territories communities that Ekati will continue to operate into the future.
It also will allow Dominion to pay or meet obligations owed to employees, including funding pensions, to remain a significant employer and corporate citizen in the Northwest Territories, and assure the government of the Northwest Territories that the company will continue to comply with all appropriate health, safety and environmental standards at Ekati and provide economic support to NWT communities.
Dominion said in a statement that it continues to believe in the long-term viability of its assets and expects to emerge from the CCAA process stronger and better able to deliver value to all stakeholders, including the NWT government and citizens of the Northwest Territories.
Dominion may draw down up to US$10 million immediately upon court approval of the financing and the balance in instalments conditional on the parties signing a definitive asset purchase agreement The proposed asset purchase agreement for the purchase of substantially all the assets of Dominion will be subject to certain conditions, including Dominion reaching a separate agreement with its 60% partner in the Diavik Diamond Mine, Rio Tinto, on terms that are acceptable to Washington. If an agreement with Rio Tinto on terms acceptable to Washington is not reached, then the sale would not include Dominion's interest in, or any liabilities relating to Diavik Mine, and would instead proceed as a sale of Dominion's other assets, including its controlling interests in Ekati and the Lac de Gras diamond project, its diamond inventory and other assets.
The companies hope a mutually beneficial and equitable resolution can be reached with Rio Tinto that allows for responsible and economically sustainable mining practices at Diavik and helps protect the future of diamond mining in the Northwest Territories.
A definitive asset purchase agreement also will be subject to other customary conditions, including agreements with the NWT government and Dominion's sureties, the absence of COVID-related restrictions on operations, receipt of certain financing commitments, and other customary conditions.