Only two weeks after the federal government blocked a takeover of struggling Nunavut gold miner TMAC Resources by China's Shandong Gold Mining, TMAC has found itself in the arms of a Canadian white knight – Agnico Eagle Mines.
On Jan. 5, Agnico announced a friendly bid for TMAC of $2.20 per share – 45¢ per share higher than the $1.75 per share Shandong had offered. The offer represents a 66% premium to TMAC's 20-day, volume-weighted share price as of Jan. 4.
As part of the deal, the gold major will also retire TMAC's outstanding debt and deferred interest and fees. TMAC's single producing asset is Hope Bay, in northern Nunavut, 125 km southwest of Cambridge Bay. The operation has underperformed since first gold was poured in 2017, requiring TMAC to make investments to improve the mill and increase its capacity to 2,000 t/d from 1,000 t/d.
The deal would put the asset in the hands of an experienced miner who already has a large presence in Nunavut. Agnico currently operates the Meadowbank complex and the Meliadine mine in the territory.
"We are very pleased to have the opportunity to bring our extensive northern operational and community experience to the Hope Bay mine and the Kitikmeot Region of Nunavut,” said Agnico CEO Sean Boyd in a release. “Together with the TMAC team and our Nunavut partners, we look forward to advancing exploration and expansion initiatives to realize the full potential of the mine and its large unexplored land package."
In a release, TMAC president and CEO Jason Neal noted the acquisition by Agnico was a positive outcome for all stakeholders.
"Our company spent almost the entirety of 2020 under the uncertainty of a strategic review process and the Canadian government review of the sale to Shandong, with an impending debt maturity, compounded by the anxiety of the global pandemic,” he said. “The acquisition being completed by Agnico Eagle is a great outcome for all stakeholders. Agnico Eagle is one of the strongest gold producers internationally, a Canadian champion and has been operating in Nunavut for more than a decade with a great track record with communities, employees and the environment."
The transaction, which is being done as an assignment to Agnico of the arrangement agreement with Shandong from last May, is expected to close by Feb. 8.
It has the support of major shareholders including Shandong, Resource Capital Funds, Newmont, and TMAC directors and officers, who collectively hold 62.3% of the company's shares.
In a research note, Laurentian Bank mining analyst Barry Allan wrote: “this is a very clean, Made in Canada solution that solves TMAC's near-term hurdles.”
He also expressed confidence that Agnico will be able to turn Hope Bay around, “unlock the extensive value of the Hope Bay greenstone belt and ultimately demonstrate the acquisition of TMAC Resources to be very accretive to Agnico shareholders.”
While TMAC has already made investments in Hope Bay, a prefeasibility study released in March pegged the cost of necessary upgrades to the operation, including a new 4,000 t/d processing facility to replace the current 2,000 t/d mill, at $683 million. Under the deal, Agnico will also assume TMAC's liabilities of around $170 million.
The generosity of the offer – $286.6 million in terms of equity value, vs. $149 million under the Shandong bid – and the fact that it was made in cash may be a recognition of the current scarcity of gold assets in a high demand environment.
Allan noted that the all-cash offer allows Agnico the flexibility to sweeten its bid, if required.
“While no other mining company has the expertise of Agnico in Canada's high North, we recognize the industry is currently flush with cash flow and is devoid of investment alternatives,” he wrote.
Hope Bay holds reserves of 16.9 million tonnes at 6.5 g/t gold for a total of 3.5 million oz.
The federal government ordered a national security review of Shandong's offer for TMAC in October, several months after TMAC shareholders had approved the bid, originally made in May 2020. The deal drew federal scrutiny amid heightened tensions with China, and because of the Hope Bay project's strategic location just a few kilometres away from the Arctic Ocean. The government rejected the deal in late December.
Why was a 26% premium above the purchase price agreed earlier with the Chinese needed to be expended to close this deal, as TMAC was clearly not in a financial position to negotiate upwards??? Just more money the Agnico’s shareholders are giving away…