Long-time Canadian miner Kevin McArthur returns to his gold roots with his silver company Tahoe Resources Inc.'s proposal to buy Rio Alto Mining Ltd.
The $1.3-billion mostly stock offer is the biggest Canadian mining deal in nearly a year and comes amid a severe slump in gold prices. Unlike other companies that have sold gold mines or suspended projects to conserve cash, Tahoe is buying Rio to expand further into South America.
"We were doing well in the downturn market. One of the things that we wanted to do was get out of the single-mine company world," Mr. McArthur said. "We felt that at the low end of the cycle, this is the time to be combining up so that we are ready for when metal prices do better."
Tahoe operates a silver mine in Guatemala. The Rio acquisition will give the Canadian company a gold mine and precious metal deposit in Peru.
This is the second major Canadian mining deal this year. Earlier Goldcorp Inc. proposed to buy Probes Mines Ltd. in a $526-million offer for its gold property in northern Ontario.
The proposal of 0.227 of a Tahoe common share and 0.001 cent for every Rio share values the smaller company at $4 per share, a 22-per-cent premium to Friday's closing price.
Mr. McArthur founded Tahoe in 2010 after retiring as the CEO of Goldcorp, the world's biggest gold company by market capitalization. A third-generation miner, whose son works as a gold mining engineer in Ontario, Mr. McArthur was chief executive of Glamis before it was acquired by Goldcorp. His first job was with the now defunct gold mining company Homestake.
Mr. McArthur and Rio's chief executive Alex Black, started talking about combining their companies at last year's Denver gold show in September.
If the deal succeeds, Mr. McArthur will become executive chairman and Mr. Black will serve as CEO.
Other companies such as AngloGold Ashanti are trying to sell gold mines to pay down debt incurred during the commodity boom.
When asked if the new Tahoe would look at some of the distressed assets on the market, Mr. Black said: "We will have our eyes and ears to the ground, but we're not looking for acquisitions for the sake of acquisitions."
"We are not going to put something sick in our portfolio, that's for sure," he said.
BMO Nesbitt Burns advised Tahoe and GMP Securities advised Rio. The deal is expected to close around April.