Emerging North American gold producer Contango ORE (NYSE American: CTGO) is boosting its land holdings in Alaska with the acquisition of Canada’s HighGold Mining (TSX-V: HIGH; OTCQX: HGMIF) and Avidian Gold’s (TSX-V: AVG) subsidiary Avidian Gold Alaska.
Contango plans to buy all of HighGold’s issued and outstanding shares for an equivalent to C$0.55 (about $0.40) per share. The figure represents a premium of 59% based on Contango’s and HighGold’s 20-day volume weighted average price (VWAP) and values the Vancouverbased junior at $37 million (C$51m).
Once the deal is completed, existing Contango investors will own 85% and HighGold shareholders will have 15% of the combined company.
Contango said HighGold's Johnson Tract high-grade gold project fits well with its strategy of building a multi-asset gold production platform in Alaska.
The company plans to leverage its expertise and the expected cash flow from its Manh Choh project, a 70:30 joint venture with Kinross Gold (TSE: K; NYSE: KGC), to speed up the development of Johnson Tract, using Contango's low-risk direct shipping ore (DSO) strategy.
The DSO model, which Contango has successfully applied at Manh Choh, aligns with the growing miner’s criteria for projects that are located near infrastructure, have sufficient grade for direct ore shipping, and have a simple ore body for permitting.
“Contango’s unique business model sets it apart in the mining sector. Focusing on assets with potential for DSO development, in which mineralized material is shipped to an existing off-site facility for processing mitigates much of the risk of conventional stand-alone mines,” HighGold’s president and CEO, Darwin Green, said in the statement.
The acquisition of HighGold will increase Contango’s annual gold production to over 150,000 oz., it said.
The Fairbanks-based company also announced on Thursday a cash and shares deal to buy Avidian’s Alaskan subsidiary, Avidian Gold Alaska. Contango will initially pay $2.4 million (C$3.3m) for the unit, with the potential for an additional $1 million in the future. This makes the total potential consideration for the target up to $3.4 million (C$4.68m), exceeded Avidian’s market capitalization of less than $1.5 million (C$2m) at the time of negotiations.
Avidian Alaska is the owner and controller of the Golden Zone and Amanita NE gold properties, with an option to acquire 100% of the Amanita gold property. The Golden Zone, located between Anchorage and Fairbanks, is close to rail and highway infrastructure.
The Amanita and Amanita NE gold properties are adjacent to Kinross Gold’s Fort Knox operation near Fairbanks.
“This transaction is a win-win, particularly considering the current market investment climate for non-producing junior exploration companies like Avidian,” the company’s director and chairman, Dino Titre, said in the statement.
The deal, subject to Avidian shareholder approval, will leave the Toronto-based gold producer debt free, with a clean balance sheet and with cash plus marketable securities of about $3 million at current equity prices.
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