Drilling at the Kilgore project, in Idaho, US.
The share price of Vancouver-headquartered Otis Gold surged 28% on Monday, following the news that Toronto-listed Excellon Resources would buy the company.
The combined business would combine Excellon’s Platosa high-grade silver mine, in Mexico, with Otis’ “high-return, low-risk” Kilgore development project, in the US.
“We believe that we are at the dawn of a new bull market in precious metals. The Kilgore deposit multiplies our resource base and increases our precious metal exposure from approximately 50% to over 90%,” said Excellon president and CEO Brendan Cahill.
He added that Kilgore represented a low-cost, high-internal rate of return opportunity.
The preliminary economic assessment for Kilgore established that the project has a post-tax net present value of $185-million and an internal rate of return of 54%, with initial capital of $81-million.
“With Kilgore, we will maintain our focus on exploration, the lifeblood of our industry. We have an immediate plan to grow the existing Kilgore resource and define the larger, multimillion-ounce opportunity,” said Cahill.
The Kilgore project hosts an indicated resource of 825 000 oz of gold at 0.58 g/t and an inferred resource of 136 000 ounces of gold at 0.45 g/t. The Oakley project hosts an inferred resource of 163 000 oz of gold at 0.51 g/t.
The acquisition also diversifies Excellon’s asset base into the favourable mining jurisdiction of Idaho and positions the miner for further growth in the US. Excellon is also mulling a listing of the combined company on the NYSE American exchange.
Under the terms of the transaction, Excellon will acquire all outstanding shares of Otis at a share exchange ratio of 0.23 Excellon shares for each Otis share.
Upon completion of the transaction, existing Excellon shareholders will own 74% and former Otis shareholders will own 26% of the combined company.
Excellon will be managed by a combination of individuals from the two companies. The proposed board will comprise seven individuals including André Fortier, Laurie Curtis, Andrew Farncomb and Cahill from Excellon, Roger Norwich and Craig Lindsay from Otis Gold and Mike Timmins. Timmins is the CEO and director of Trillium Mining and former VP for corporate development of Agnico Eagle Mines. Timmins led Agnico’s C$5-million strategic investment in Otis Gold in 2017 to further the Kilgore project.
Stock in Otis traded 28% higher at C$0.16 a share in Vancouver, while Excellon’s shares fell 6.25% to C$0.75 apiece in Toronto.