West Africa-focused gold miners Keegan Resources Inc. and PMI Gold Corp. have agreed to an all-stock merger to create a $700-million company that combines their asset- and balance sheet-strengths and lets them fast-track mines into production while gold prices are still high.
The merger comes at a time when access to financing is one of the key challenges facing global miners, especially those not yet in development. It marries Keegan, a company with about $220-million in cash and a less advanced gold property to PMI, which has a more advanced property but less cash.
"They've got, arguably, a slightly better asset, we have slightly more cash, so you put them together, and we put their project into development first," said Keegan chairman Shawn Wallace, pointing at a stalled financing market and sluggish merger and acquisition activity in the sector.
"Right now there is no sign on the horizon that things are going to get necessarily better any time soon and if we want to capitalize on high gold prices, we have to get into production here," he said.
The merger will see shareholders from each company owning equal parts of the new entity, to be called Asanko Gold Inc. and which will put two adjacent properties into production within five years. The new company will have $340-million of cash on hand and no debt outstanding.
"The transaction appears to benefit both parties, with Keegan gaining exposure to a more advanced and higher-grade project while PMI secures required funding to advance construction," BMO Nesbitt Burns Inc. analyst Andrew Breichmanas wrote in a research report.
PMI Gold shares jumped 12 per cent after the deal was announced and Keegan shares traded 3.9 per cent higher.
The new company plans to be a midtier producer by 2017, producing up to 400,000 ounces of gold per year from two projects in West Ghana. The first, Obotan, should pour first gold by 2014 and have output of 200,000 ounces. That will help fund development of the Esaase asset for output of up to 200,000 ounces by 2017.
Closer to home, Venture Exchange-listed Maudore Minerals Ltd., a Montreal-based gold explorer, announced a proposal to acquire Eagle Hill Exploration Corp. in a deal that would put two properties in Quebec's Val d'Or area - Comtois and Windfall Lake - under the same roof and potentially into development.