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CANADIAN MINING PERSPECTIVES: A merger that makes sense

Finally, a merger that makes sense. Three junior gold companies are combining to make a new, mid-sized producer. ME...


Finally, a merger that makes sense. Three junior gold companies are combining to make a new, mid-sized producer. METALLICA RESOURCES of Toronto and Denver, NEW GOLD of Toronto and PEAK GOLD of Vancouver are creating what our sister publication The Northern Miner has called “an axis of equals”.

Each of the participants will bring projects and mines to the new company, which will use the New Gold name, giving it a foundation that can support profitable growth.

Metallica opened the Cerro San Pedro gold-silver mine in Mexico last year. The El Morro copper-gold project (30% Metallica and 70% Xstrata) in Chile has reached the advanced exploration stage. Metallica is also earning interests in three other exploration projects: 100% of the Rio Figueroa copper-gold project in Chile; 65% in several precious metals properties in southwest Alaska and the Aleutian Islands; and 100% of the Liberty Bell gold project in central Alaska.

New Gold’s major contribution is the New Afton copper-gold project 10 km west of Kamloops, B.C. The permit was approved in November 2007 for development of an underground mine and mill at a cost of $495 million. Production is planned to begin in late 2009. New Gold also holds the nearby Ajax-Python property. An open pit and mill was previously operated at the Afton site.

Peak Gold owns 90% of and operates the Ampari heap leach gold mine in Brazil which was commissioned in 2005. The company also has an underground gold-copper mine, Peak Mines, in Australia.

The combined company will enjoy diversified production assets and a promising number of projects in the development pipeline. Their combined gold production for 2008 is estimated at 297,000 oz, and that will grow to 335,000 oz in 2009. Proven and probable gold reserves are 3.2 million oz; measured and indicated are 4.9 million oz, plus 3.0 million oz in the inferred resources category. Copper resources in all categories top 4.4 billion lb.

To guide the new company into the future, Robert Gallagher, currently CEO of Peak Gold, will assume that role for the combined company. The board of directors will be composed of Clifford Davis (New Gold), Robert Gallagher, Pierre Lassonde (Franco Nevada chairman), Craig Nelsen (Metallica), Paul Sweeney (New Gold) and Ian Telfer (Peak Gold).

The merged company is valued at a modest $1.6 billion. The proposed deal gives Metallica shareholders 0.9 of a New Gold common share for each Metallica share they hold. Peak Gold investors will receive 0.1 of a common share of New Gold for each Peak Gold share they hold. The deal is dependent on regulatory approval and approval by two-thirds of all the shareholders.

What makes this such a sensible merger? The combined company will have large resources of gold and copper. It will have new projects ready to go within a year or two, to boost output. And it will have a team of industry veterans at the top to guide it.


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