North of 60 Mining M&A activity heats up
Four major mining companies make offers for competitors, juniors with assets in Canada's Northern BC, Yukon, Nunavut North of 60 Mining News - March 3, 2023
Last updated 3/8/2023 at 6:49pm
From competing offers for an exploration company with large and intriguing mineral projects in the Yukon, to the world's largest gold miner making a US$17 billion bid to buyout an Australian mining company with two producing assets in British Columbia's Golden Triangle, February was a big month for mergers and acquisitions in the North of 60 Mining News coverage area.
Three M&A proposals were put forward in February that would create a shift in the North of 60 mining sector – Newmont Corp.'s bid to buyout Newcrest Mining Ltd., B2Gold Corp.'s agreement to acquire Sabina Gold & Silver Corp., and Victoria Gold Corp.'s offers for ATAC Resources Ltd.
Of the three, only B2Gold's roughly C$1.1 billion (US$820 million) proposed buyout of Sabina, owner of the Back River gold project in Nunavut, was immediately accepted.
Both Newcrest and ATAC contended that their suitors were being opportunistic, and the offers did not reflect the value of the companies or their assets.
For ATAC, another suitor was already waiting in the wings. Immediately after the expiration of Victoria's bid, Hecla Mining Company sweetened the pot with more money and the creation of a spin-out company to continue advancing ATAC's earlier staged copper assets in the Yukon and Northern BC.
"We believe the potential transaction will provide significant value to ATAC shareholders," ATAC Resources President and CEO Graham Downs said when the Hecla offer was announced.
Reaching a new agreement
By far the largest acquisition deal put on the negotiating table last month was Newmont's offer for Newcrest, a company that started out as an Australian subsidiary of Newmont back in 1966.
Today, Newcrest has five operating mines – two in Australia, two in Northern BC, and one in Papua New Guinea – that produce roughly 2 million ounces of gold and more than 120,000 metric tons of copper per year.
In early February, Newmont laid a roughly US$17 billion all-shares offer on the table to bring Newcrest back into the fold.
Newmont's proposal was to exchange 0.38 Newmont shares for each Newcrest share, which would have resulted in Newcrest shareholders owning a 30% stake in the merged company, with the balance held by current Newmont shareholders.
"The proposed transaction would join industry-leading portfolios of assets and projects to create long-term value across the combined global business, and we welcome the consideration of Newcrest's board of directors," said Newmont President and CEO Tom Palmer.
After consulting with its advisors, however, Newcrest's board determined that the offer does not represent the Australian mining company's worth. To provide Newmont executives with an inside look at the missed value, Newcrest's board has agreed to provide access to limited, non-public information on a non-exclusive basis.
This indicates that Newcrest would be open to a better proposal from Newmont or another company willing to put forward a better proposition for shareholders – at more than US$17 billion, that is expected to be a relatively short list of suitors.
During a Feb. 23 conference call, Palmer said Newmont is looking over the Newcrest data in hopes of finding a sweet spot that would appeal to both companies.
"If we can reach an agreement, this combination of industry-leading talent and decades of collective experience would create significant value across the global business with an ideal mix of gold and copper, strengthening Newmont's overall position as the world's leading gold company," he informed investors and shareholders.
Northern BC implications
If a buyout deal can be hammered out between Newcrest and Newmont, this merger would have major implications for Northern BC and the Yukon, a primary area where the portfolios of these mining majors meet.
Palmer said the Newcrest acquisition "would build upon the district potential in British Columbia's highly prospective Golden Triangle through a combination of operating mines and development projects that would deliver value through shared technology, local capabilities, and orebody experience."
Newcrest operates Red Chris and Brucejack, the only large-scale mines currently in production in the Golden Triangle region of Northern BC.
Red Chris is a large porphyry gold-copper mining operation that Newcrest bought a 70% interest in 2019 and operates under its joint venture with Imperial Metals Corp. Brucejack is a high-grade underground gold mine that Newcrest bought full ownership of in 2022.
Newmont, on the other hand, bought a 50% JV interest in the world-class Galore Creek porphyry copper-gold project in Northern BC in 2018 and gained full ownership of the Tatogga gold-silver-copper project about 20 kilometers (12.5 miles) away from Red Chris through a US$311 million buyout of GT Gold Corp. in 2021.
While Newcrest has built a relatively strong working relationship with the Tahltan Nation, which is essential to successful mine development in BC's Golden Triangle, Newmont's plans for mining at Tatogga have raised some concerns among the members of this First Nation.
An in-depth report on mining and the First Nations in the Golden Triangle can be read at BC First Nations forge mining alliances in the February 3, 2023 edition of North of 60 Mining News.
In 2021, the Tahltan Central Government announced it was working with the provincial government to negotiate and reach an agreement to address Tahltan worries over the pace and scale of mineral development near the Northern BC community of Iskut, which lies about 10 miles (16 kilometers) northwest of Newcrest's Red Chris Mine and about four miles (six kilometers) southeast of the North Saddle gold-copper deposit on Newmont's Tatogga property.
A centralized mill at Red Chris that processes North Saddle ore would greatly reduce the environmental footprint at Tatogga. While this idea has not been put forward by either mining company, it may offer a solution that allays some of the Iskut community concerns and allows Newmont to move forward with mining of this deposit that hosted 1.8 billion pounds of copper, 3.5 million oz of gold, and 7.6 million oz of silver in the indicated resource category at the time of Newmont's purchase.
Additional synergies could be realized with the development of a mine at Galore Creek, a world-class copper-gold project about 120 kilometers (75 miles) southwest of Red Chris, being advanced by a JV equally owned by Newmont and Teck Resources Ltd.
Newmont's 2.1-million-oz Coffee gold mine project in the Yukon, which lies 800 kilometers (500 miles) northwest of Red Chris, would likely also enjoy synergies from an expanded Newmont presence in BC's Golden Triangle.
Victoria's bid for ATAC
While the dollar value and global implications pale in comparison to the proposed Newmont-Newcrest merger, the competing offers for junior mineral explorer ATAC Resources are set to reshape Yukon's mining sector.
Famed for its discovery of Carlin-style gold mineralization on its massive Rackla Gold property, ATAC was the darling of Yukon mineral exploration about a decade ago, with its share value rocketing to C$9.05 in 2011. The junior, however, was not immune to the market crash of 2012 and by the end of 2013 ATAC shares were trading at around C60 cents each.
Over the ensuing decade, ATAC has had its ups and downs, including a C$63.3 million (US$46.4 million) agreement with Barrick Gold Corp. in 2017 for a 70% interest in the Orion project, a middle section of the 185-kilometer- (115 miles) long Rackla land package.
Barrick, however, decided to drop the option at the end of 2018. Barrick's departure, coupled with a territorial denial of the permits for a proposed road that would have provided access to the Rau end of the Rackla property, pressured ATAC shares down to a low of C7 cents by early February of this year.
Looking to strengthen its mineral land package in the Yukon, Victoria Gold made an all shares offer to buy ATAC in a deal that would have been worth roughly C12 per share, or about C$26.5 million.
"With our demonstrated track record permitting, financing, constructed and operating the Eagle Gold Mine in Yukon, we believe that we can add value to ATAC's portfolio which would benefit shareholders of both companies," said Victoria Gold President and CEO John McConnell.
Though Victoria's proposal represented an 85% premium to ATAC's share price at the time, the junior explorer said the offer did not represent the value of the company or its projects in the Yukon and BC.
"The Rackla Gold property represents an immense landholding with no underlying royalties. It encompasses two known mineral districts, with significant gold resources and vast precious, base and critical metals potential," said ATAC Resources President and CEO Graham Downs.
The Osiris deposit on the Nadaleen project at the eastern end of the Rackla Gold belt hosts 5.53 million metric tons of indicated resource averaging 4.12 g/t (732,000 oz) gold and 9.36 million metric tons of inferred resource averaging 3.47 g/t (1.04 million oz) gold.
The Rau property at the western end of Rackla hosts a wealth of polymetallic gold targets, including the Tiger deposit, which hosts 4.56 million metric tons of measured and indicated resource averaging 3.19 g/t (464,000 oz) gold.
In addition to Rackla, the company's portfolio includes the highly prospective Connaught, Catch, Rosy, and PIL mineral exploration properties in the Yukon and BC.
"With over C$4 million in cash in our treasury, a strong resource base at Rackla, and compelling discovery potential across our project portfolio, we believe this offer does not reflect the significant value of ATAC," said Downs.
Because of these reasons, ATAC declined Victoria's proposal, twice.
Hecla sweetens the pot
One of the reasons ATAC was quick to dismiss Victoria's offer is it had another suitor in waiting – Hecla.
A newcomer to the Yukon, Hecla nabbed a foothold in the territory last year with the acquisition of Alexco Resource Corp. and that company's Keno Hill Silver District mine project.
While ramping up to commercial production at its newly acquired Keno Hill silver mine, Hecla jumped on the opportunity to expand its Yukon portfolio through the acquisition of ATAC.
On Feb. 21, Hecla announced that it had tendered an offer to acquire ATAC in a shares exchange deal valued at C14 cents per ATAC share.
"Hecla is an ideal acquirer for the Rackla Gold property, given its adjacent Keno Hill mining project and demonstrated commitment to the Yukon and its communities," said Downs.
The extra C2 cents per share, however, was not the biggest selling point for ATAC. Instead, it was Hecla's willingness to spinout ATAC's earlier staged projects into a new copper-focused exploration company.
Under the proposed deal, Hecla will bring the Rackla Gold and silver-rich Connaught property in western Yukon into its own portfolio of exploration assets. ATAC's earlier staged projects – Idaho Creek, Catch, Rosy, and PIL – and the cash ATAC has in its treasury would be spun out into a new exploration company for now called Spinco.
Hecla has agreed to invest another C$2 million (US$1.5 million) into Spinco and will own an initial 19.9% interest in the new exploration company.
So, in addition to owning a piece of Hecla, ATAC shareholders would also receive shares of the new exploration company with intriguing assets and enough cash to begin exploring them.
"The spin-out of a new copper-focused exploration company provides additional value to shareholders," added Downs. "With the foundation of our existing copper assets, Spinco will be well positioned to aggressively explore for copper – a key critical metal – throughout BC and Yukon."
For ATAC shareholders, the proposed transaction is worth roughly C$31 million (US$22.7 million) in Hecla shares and approximately C$8 million (US$5.9 million) in Spinco shares.
"We look forward to working with the Hecla team to negotiate a binding agreement for the proposed transaction, and in partnership subsequently advance the new Spinco," said Downs.
Back River gold deal
The one North of 60 M&A deal that saw strong support from the boards of both companies involved was B2Gold's roughly C$1.1 billion (US$820 million) bid to buyout Sabina and that company's district-scale Back River Gold project in Nunavut.
For B2Gold, the Sabina buyout provides a near-term gold mine in Canada that comes with vast exploration potential across a package of five claim blocks spanning an 80-kilometer (50 miles) belt in the Kitikmeot region of western Nunavut.
"The Back River Gold District has multiple high-potential mineralized zones which remain open, and we are confident that the district has strong untapped upside with numerous avenues for resource growth," said B2Gold President and CEO Clive Johnson. "Our extensive due diligence reinforced the scarcity of a gold district of the quality of Back River, as well as the excellent work that the Sabina team has completed to date in taking the asset from an exploration project to a near-term operating mine."
In September, Sabina's board officially approved the development of a roughly 223,000-oz-per-year gold mine at Goose, the most advanced project within the larger Back River land package.
This decision followed a 2021 feasibility study update that is expected to produce 3.34 million oz of gold over 15 years from 18.7 million metric tons of proven and probable reserves averaging 5.97 g/t (3.6 million oz) gold, including 287,000 oz of gold annually over the first five years of commercial production.
With permits already in-hand, the Goose Mine is on track to pour its first gold in 2025.
Good for both companies
To gain ownership of the Goose Mine and larger Back River potential, B2Gold has agreed to issue Sabina shareholders 0.3876 B2Gold shares in exchange for each Sabina share held.
Based on a 20-day volume weighted average price of the two companies as of Feb. 10, this offer comes to roughly C$1.87 per Sabina share. This C$1.1 billion offer represents a 45% premium to Sabina shareholders based on the 20-day average.
If the deal is finalized as proposed, Sabina shareholders would own 17% of the merged company, with current B2Gold shareholders owning the remaining 83%.
The share price premium offered by B2Gold, coupled with the benefits of becoming part of a 1.1-million-oz gold-producing company able to take the Goose Mine across the finish line, is compelling to Sabina's management and board.
"The execution of the Goose project by Sabina did not come without risk to Sabina as a single asset, junior development company with capital constraints," said Sabina Gold & Silver President and CEO Bruce McLeod. "With a two-year construction period until first gold production, we believe that additional value can be unlocked by participating as shareholders of a major gold producer with the northern experience and financial resources to optimize the Goose project and this prolific belt."
"Shareholders will also benefit from exposure to B2Gold's continued growth and healthy dividends," he added.
Adding a Canadian mine ready to pour gold in two years to its operating assets in Mali, Namibia, and the Philippines is an attractive proposition for B2Gold.
"The acquisition of Sabina represents an exciting opportunity to develop the significant gold resource endowment at the Back River Gold District into a large, long life mining complex," said Johnson.
The boards of both B2Gold and Sabina have approved the transaction. Subject to Sabina shareholder and regulatory approvals, finalization of B2Gold's buyout of Sabina is slated for completion before mid-year.