Photo by: Duane Daws
TORONTO (miningweekly.com) – Canadian gold miner Rio Alto on Wednesday said that it would buy project developer Sulliden Gold in a friendly, all-scrip transaction valued at C$300-million.
The merger would create a gold-oriented midtier miner in Peru, which according to the US Geological Survey is the world’s fifth-largest producer of the yellow metal.
Under the agreement, Rio Alto would pay Sulliden shareholders 0.525 of a Rio Alto common share for each outstanding share, and Sulliden shareholders would also receive 0.1 of a common share in a newly incorporated company (SpinCo) for each Sulliden common share held.
The offer valued Sulliden at C$1.12 a share, representing a 43.4% premium to the Tuesday closing price of Rio Alto’s TSX-listed stock at C$2.13 a share.
The newly formed company would hold Sulliden's full interest in the East Sullivan property, in Val-d'Or, Quebec and would be capitalised with about C$25-million in cash, which at Rio Alto’s option may be paid in cash, or C$15-million in cash and C$10-million in Rio Alto common shares.
Following the transaction, each outstanding warrant and stock option to buy Sulliden common shares would be exercisable to buy 0.525 of a Rio Alto common share and 0.10 of a SpinCo common share in place of each Sulliden share.
The deal comes in the wake of Quebec-focused Osisko Mining last month agreeing to Yamana Gold and Agnico-Eagle Mines buying it for C$3.9-billion in an effort to sidestep a hostile offer from rival Goldcorp.
Senior gold miners Barrick Gold and Newmont Mining had also recently held unsuccessful merger talks, ending in a public spat.
Rio Alto's financial consultant is GMP Securities LP and its legal counsel is Davis LLP. Sulliden's financial adviser is Cormark Securities and its legal adviser is Cassels Brock & Blackwell LLP.
MIDTIER POTENTIAL
The transaction would combine Rio Alto's currently producing and low-cost La Arena gold oxide mine and adjoining sulphide copper/gold deposit with Sulliden's low-cost, scalable Shahuindo gold project, located in Cajabamba, in the north of the country.
The new company would have near-term production potential of about 300 000 oz/y of gold and the added chance to expand output, while maintaining attractive and sustainably low cash costs.
Sulliden completed a feasibility study on Shahuindo in September 2012 (assuming prices of $1 415/oz gold and $27/oz silver) outlining a 10 000 t/d openpit heap-leach mine that would see yearly output of about 85 000 oz of gold over an estimated ten-year mine life, at cash costs of about $550/oz, based on mining 40% of the defined measured and indicated gold oxide resource.
The combined company would have immediate gold output of between 200 000 oz and 220 000 oz from Rio Alto's La Arena gold mine based on 2014 guidance, with Sulliden's Shahuindo project targeted to produce first gold by late 2015, or early in 2016.