Equinox Gold Corp. Equinox is buying Premier Gold Mines Ltd. Premier in an all-stock takeover transaction worth about $612-million that should result in a stalled gold mining project in Ontario finally moving forward.
Like many transactions announced in the gold industry over the past few years, this one sees only a small premium being paid by the acquirer.
As part of the transaction, Premier plans to spin out its Nevada gold assets into a new public company to be called i-80 Gold Corp. Premier shareholders will receive 0.1967 of an Equinox Gold share for each Premier share, (about 2 per cent more than the market price), and 0.4 of an i-80 share. The spinout and sale of Premier are expected to close in the first quarter of next year.
Premier operates a small gold mine in Mexico and holds stakes in a number of other North American mines and development projects. But its most valuable asset is a 50-per-cent stake in the Hardrock gold project in Northwestern Ontario, which is eventually expected to produce more than 400,000 ounces of gold a year over 14 years.
About a year ago, Hardrock hit a snag after co-owner Centerra Gold Inc. brought a legal action against Premier challenging the soundness of a feasibility study on the mine. Premier fought the suit and it was due to go to trial in January. However, earlier in the week, Centerra agreed to sell its stake in Hardrock to New York-based Orion Mine Finance Group for US$300-million and, if that deal closes, the legal suit around Hardrock will be dropped.
The acquisition of Premier by the much bigger Equinox, which is worth north of $3.1-billion, also removes much of the financing risk around the construction of Hardrock.
“We would have had to raise a lot of capital to build Hardrock, and it would have been pretty dilutive to our shareholders,” Ewan Downie, chief executive of Premier, said in an interview.
“[Equinox and Orion] had the financial capacity to build Hardrock on an expedited basis.”
Shares in Premier rose by 19 per cent on Wednesday on the Toronto Stock Exchange to close at $3 apiece, while Equinox Gold shares fell by 1.8 per cent to close at $12.86.
Equinox’s CEO, Christian Milau, predicts the company will formally announce it is moving forward on the construction of Hardrock in the second half of next year, a few months after the Premier acquisition closes. The cost to build Hardrock has been pegged a $950-million and will be shared between Equinox and Orion.
Mr. Milau said weakness in Equinox’s stock on Wednesday was partly because of uncertainty over how much i-80 will be worth. Equinox plans to take a stake in the spinout as part of a concurrent $75-million financing.
In a note to clients, Scotia Capital Inc. analyst Ovais Habib estimated the value of i-80 assets at $546-million. Named after the highway that cuts across northern Nevada, home to the world’s biggest gold mines, i-80 will hold two development projects in the state, and 40 per cent of a mine operated by Nevada Gold Mines, a joint venture between Barrick Gold Corp. and Newmont Corp.
Vancouver-based Equinox was founded in 2018 by well-known mining financier Ross Beaty, who is also one of the company’s biggest shareholders. Equinox operates seven gold mines in North and South America and has grown in large part by making acquisitions. Exactly one year ago, it announced the acquisition of Leagold Mining Corp. for $769-million.
Mr. Milau played down the chances of Equinox announcing yet another large transaction any time soon, saying it had already reached a size and scale that attracted significant investor interest. This year, the company is on track to produce about 500,000 ounces of gold, but once Hardrock, which will take about 2½ years to build, comes into production, the company should be producing north of one million ounces.
“I don’t think we need to get bigger any more for bigger’s sake,” he said.
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