Canadian midtier gold producer Gran Colombia Gold has signed a definitive agreement to complete a business combination with junior miner Gold X Mining and has submitted a proposal to Guyana Goldfields to acquire all its issued and outstanding common shares.
As part of the transaction, Gran Colombia will acquire the remaining 81% of the issued and outstanding shares of Gold X that it does not already own at a share exchange ratio of 0.500 of its own shares for each Gold X share. This implies a headline value of C$3.17 a piece, representing a premium of 15% to the closing price on the TSX-V on May 8, and a premium of 41% to the volume-weighted average price of Gold X shares over the 20 trading days ended May 8.
The transaction is also subject to the concurrent completion by Gran Colombia of its acquisition of Guyana Goldfields and other conditions customary for completion of similar transactions.
Gran Colombia has submitted a proposal to Guyana Goldfields to acquire all of its issued and outstanding common shares at an exchange ratio of 0.142 of its shares for each Guyana Goldfields share.
TSX-listed Guyana Goldfields said its board is reviewing the proposal to determine if it is superior to the arrangement agreement that it entered into with fellow-listed Silvercorp Metals on April 27.
The combined entity will continue as Gran Colombia and will be managed by the current Gran Colombia executive team, with corporate headquarters remaining in Toronto, Canada.
Shareholders of Gran Colombia will own 60% of the combined company, with Guyana Goldfields and Gold X shareholders owning 25% and 15%, respectively, on a basic shares outstanding basis.
As part of the merger, the companies will bring their expertise in Latin American mining projects to enhance the value of the combined assets and create a new Latin American intermediate gold producer.
Gran Colombia and Gold X believe the immediate value creation afforded to Guyana Goldfields shareholders through the upfront offer premium and the ability to realise further value through the continued operations in the new larger, stronger entity represents an opportunity superior, both strategically and financially, to the proposed transaction between Silvercorp Metals and Guyana Goldfields.
Following the merger, Gran Colombia will have strong pro-forma 2020 production of 275 000 oz with production growth to over 500 000 oz/y, based on management estimates, through the development of three near-term growth projects – Toroparu, Aurora underground and Marmato, through a 74% ownership in Caldas Gold.
Toroparu is located 50 km from Aurora. Gran Colombia and Gold X have identified an opportunity to connect the two sites and use existing Aurora infrastructure to develop an enhanced production plan for both Toroparu and Aurora gold resources that significantly reduces the upfront capital that would be required to start the Toroparu openpit and Aurora underground projects independently.
Gran Colombia management estimates potential to unlock savings of $200-million based on the latest Toroparu and Aurora technical reports. Key savings include the use of the Toroparu resource as satellite deposits for near-term gold production from Aurora’s leach processing facility, use of existing mining fleet and camp facilities at Aurora, shared access infrastructure. The full integration plan is expected to be completed post-closing of the merger proposal.
The combined company, run under Gran Colombia, will have greater than $100-million in cash in addition to the financing support provided by Wheaton Precious Metals to fund development. The combined company will also have greater access to equity and debt markets and benefit from Gran Colombia’s Segovia project’s robust free cash flow.
Further, Caldas Gold is currently evaluating a number of financing options for the Marmato expansion ahead of a prefeasibility study due mid-2020.
Gran Colombia executive chairperson Serafino Iacono says it is extremely rare to come across a transaction that can unlock significant tangible synergies outside of simply consolidating head offices. “Not only does this transaction unlock meaningful value for all shareholders, but it creates a new Latin American gold champion with Latin American operators and mine builders.”
He adds that Gran Colombia will use its unique skillset to continue to grow Gran Colombia and create substantial value for all shareholders. “We look forward in the coming weeks to present our vision to shareholders and demonstrate the superior value that our proposed merger possesses.”
Gran Colombia CEO Lombardo Paredes says, having studied the integration of Aurora and Toroparu, Gran Colombia strongly believes in its potential. “Based on our internal integration plan we have identified $200-million of synergies as there are a number of different areas where Toroparu can benefit from the existing infrastructure at Aurora. This is truly a unique opportunity and I look forward to using Gran Colombia’s strong operating and mine-building team to unlock this substantial value for shareholders.”
Gold X CEO and chairperson Paul Matysek says this business combination will release both short- and long-term value through the economies of scale and synergies inherent in two large deposits located within 50 km of each other. “We are fortunate to have attracted such an experienced operator as Gran Colombia. The management team’s success as an underground miner in Colombia, as well as history developing assets within the Guiana Shield, make them the ideal partner for development of the mining assets in Guyana.”