Brio Gold's Riacho dos Machados mine, Brazil
Photo by: Brio Gold
VANCOUVER (miningweekly.com) – The TSX-listed equity of Brio Gold jumped 50% on Tuesday following rising precious metals producer Leagold Mining's announcement of its intention to make a friendly $264-million all-scrip offer for the company by February 28.
Leagold is making good on its promise to use the April 2017 acquisition of the Los Filos mine, in Mexico, as a platform from which it can grow its production base through mergers and acquisitions focused on Latin America, drawing on the management team's proven experience in turning around marginal operations.
"…We have a clear objective of building Leagold into a leading, intermediate gold producer in Latin America. This strategy focuses on acquiring operating gold mines and projects nearing construction, post-acquisition asset optimisation, and unlocking value," commented CEO Neil Woodyer.
Under the terms of the deal, Brio shareholders will receive 0.922 of a Leagold share for each share held, at an implied price of C$2.80 per Brio share – a premium of 57% based on both companies' five-day weighted average share prices on the TSX at market close on Monday.
Yamana has agreed to support the deal and will tender its 53.6% Brio stake to the offer.
Brio urged shareholders not to take any immediate action in response to the offer, until its board and a special committee, together with their advisers, review Leagold's proposed offer.
"It is not surprising that strategic interest has surfaced in Brio Gold given the high-quality assets within our portfolio and the fact that the company is extremely undervalued," said Brio president and CEO Gil Clausen in a statement.
Brio has been focusing on containing costs and increasing its cash flow to offset production challenges and has invested in the Riacho dos Machados expansion, in Minas Gerais, and Santa Luz, in Bahia – both in Brazil – which are poised to lift the run rate to a range of 350 000 oz to 400 000 oz of gold in 2019.
The combined operations are expected to produce about 450 000 oz in 2018, with the potential for growth to more than 700 000 oz in 2020, at all-in sustaining costs in the mid-$800s, Woodyer said.
The combination reduces overall business risk by having four operating mines in two jurisdictions.
Yamana Gold had in December completed the spin-out of Brio, forming a standalone public company focused on a portfolio of noncore Yamana assets in Latin America and Canada, which it initially spun out in 2015, as it honed operations at its core assets. The transferred assets included Fazenda Brasileiro, Pilar and C1 Santa Luz, as well as some related exploration concessions.
Leagold has retained UBS Investment Bank as its financial adviser in connection with the offer. Fasken Martineau DuMoulin is acting as Canadian legal adviser to Leagold.