Vancouver-based Great Bear has been one of the best-performing junior gold stocks in the world over the past few years, owing to promising drilling results at its Dixie gold project in Red Lake, in northwestern Ontario.Great Bear Resources
Kinross Gold Corp.’s planned acquisition of Great Bear Resources Ltd. has landed with a thud, over widespread concern from investors that it may be overpaying for a development company with no gold reserves, and could even be opening itself up to a hostile takeover.
Toronto-based Kinross said in a news release late Wednesday that it had reached a friendly arrangement to acquire Great Bear for $29 a share in cash and stock, a 26.5-per-cent premium to its market price, in a transaction worth $1.8-billion.
Kinross is Canada’s second-biggest gold company by production, with annual output of more than two million ounces. The Great Bear acquisition would help Kinross reduce its exposure to politically problematic Russia and West Africa, and increase its weighting toward Canada, one of the safest mining jurisdictions.
Vancouver-based Great Bear has been one of the best-performing junior gold stocks in the world over the past few years, owing to promising drilling results at its Dixie gold project in Red Lake, in northwestern Ontario. Some analysts have speculated that Dixie could contain as much as 20 million ounces of gold, which would put it on par with Canada’s biggest gold mines.
Great Bear, however, is still at a nascent state. The company has not yet conducted a 43-101 report on Dixie. The regulatory report is a rigorous study carried out by geologists estimating the grade and quantity of gold in the ground, and the costs of extraction.
“If there are bodies, they’re always buried somewhere in a 43-101,” said Doug Pollitt, veteran analyst with Toronto-based boutique advisory firm Pollitt & Co. “A 43-101 allows the public to make more informed investment decisions. We don’t have that with Great Bear, and there’s a lot of money at stake.”
History shows that paying top dollar for early-stage exploration companies with no 43-101 can be dangerous. In 2008, Vancouver-based Goldcorp Inc. bought Red Lake development company Gold Eagle Mines Ltd. for $1.5-billion.
As with Great Bear, Gold Eagle had promising drill results, but no 43-101. When that report eventually came, the amount of proven economic gold in the ground was minuscule. The Gold Eagle acquisition was a disaster for Goldcorp, and its failure contributed to the company eventually being sold to a competitor at a deep discount.
On Thursday, shares in Kinross fell by 10.2 per cent on the Toronto Stock Exchange, its steepest drop since late March of last year.
Defending the planned acquisition of Great Bear, Kinross chief executive officer Paul Rollinson said in an interview that the company had gathered enough data about Dixie in its three years of due diligence to be able to make a “confident call” that it will eventually turn into a large gold mine.
Over the next few years, Kinross plans to conduct a lot more drilling of its own, and tighten the intervals between existing drill holes that have already struck gold.
Kinross executives made it clear on a conference call with analysts on Thursday that it will not rush things at Dixie, and it pushed out the timeline of a maiden resource report that Great Bear had originally signalled would come early next year.
Asked during the conference call when a mine might be in production at the camp, Paul Tomory, Kinross’s chief technical officer, said that 2029 would be “a good guess.” Historically, though, Red Lake has proved to be an extremely technically challenging district to mine, with several companies encountering serious geological problems over the years.
Despite the significant execution risks that swirl around Great Bear, Kinross was far from the only large gold company that considered buying it. Two sources familiar with the takeover talks said that Great Bear generated significant interest from gold majors, including Barrick Gold Corp.
The Globe is not identifying the sources because they were not authorized to speak publicly about the matter. Barrick did not respond to a request for comment.
Some analysts believe there is a fair chance that competing bids will also emerge for Great Bear. “We do believe there is interloper risk,” Scotia Capital Inc. analyst Tanya Jakusconek wrote in a note. She singled out Barrick as a possible bidder, pointing out that CEO Mark Bristow has repeatedly said he wants to grow the company’s presence in Canada, where it has only one mine.
Well-followed mining blogger IKN also speculated that continuing price weakness in Kinross shares could create an opportunity for Barrick to acquire Kinross at a discount.
“I’ve heard that hypothesis,” Mr. Rollinson said. “We feel we’ve got a tiger by the tail here. Beyond that, I just don’t want to speculate on what Barrick might do to us.”
After falling out of favour in the late 2000s, Red Lake is in the midst of a renaissance that has also spurred furious M&A activity. Last year, Australia’s Evolution Mining Ltd. paid US$475-million to acquire the Red Lake mines formerly owned by Goldcorp. And earlier this year, Evolution acquired Battle North Gold Corp., a junior developer that resurrected a troubled gold mine formerly operated by Rubicon Minerals Corp.
Like many exploration plays, Great Bear has a scrappy origin story. Its chief executive officer, Chris Taylor, had to raise money from family and friends in order to purchase the Dixie project in 2017. Back then, the gold industry was in the doldrums. Over the past few years, the precious metal has tested new highs, benefiting in part from the economic uncertainty of the pandemic.
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Niall McGee