The Detour Lake mine, in Ontario, Canada.
Canadian gold miner Kirkland Lake Gold on Monday announced that it would buy smaller rival Detour Gold in a $4.9-billion all-share transaction, solidifying its position as a senior gold producer with targeted 2019 gold production of about 1.5-million ounces and free cash flow of almost $700-million.
The acquisition would add the 600 000 oz/y Detour Lake mine, in Ontario, to Kirkland’s portfolio, which already includes the Macassa and Holt Complex in Ontario, as well as the Fosterville mine, in Australia.
“We have already taken two mining operations, Macassa and Fosterville, and transformed them into high-quality assets that generate industry-leading earnings and free cash flow. The addition of Detour Lake provides an opportunity to add a third cornerstone asset that is located in our back yard in northern Ontario,” said Kirkland CEO Tony Makuch.
However, shareholders did not seem impressed, with the company's share price falling by 14% to C$53.31 a share on the TSX by 10:00 in Toronto. Detour Gold's share price rose 4% to C$23 apiece.
Detour Gold CEO Mick McMullen commented in a news release that the transaction recognised the improvements that the management team had made to re-engineer Detour’s operations and business practices.
“Kirkland Lake Gold’s strong balance sheet and cash generating capabilities will support additional investment in the exploration of Detour Lake to help unlock further growth potential.”
The mine already added 15.4-million ounces to Kirkland’s mineral reserve base and extends reserve life index by eight years.
Kirkland is planning extensive drilling at highly prospective exploration targets within the 1 040 km2 Detour Gold land position, where there is believed to be considerable potential for new discoveries to support future mineral resource growth.
“The work we are planning around Detour Lake will be a key component of our corporate exploration programme going forward. Other anticipated components of this programme include ongoing drilling at Macassa to grow the South Mine Complex and identifying high-grade gold zones along the Amalgamated Break, as well as continued extensive exploration at Fosterville and Northern Territory,” said Makuch.
TRANSACTION TERMS
Under the terms of the transaction, all the issued and outstanding common shares of Detour would be exchanged at a ratio of 0.4343 of a Kirkland Lake common share for each Detour common share.
Kirkland said that the exchange ratio implied consideration of C$27.50 a Detour Gold common share, based on the closing price of the Kirkland Lake common shares on the TSX on Friday, representing a 24% premium to the closing price of the Detour Gold shares on the TSX on the same day.
Based on the 20-day volume-weighted average price of the companies on the TSX, the offer implies a premium of 29% to Detour shareholders.
Upon completion of the transaction, existing Kirkland and Detour shareholders would own about 73% and 27% of the pro forma company, respectively.