Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Equinox Gold (TSX: EQX) became on Monday the latest Canadian gold miner to acquire a smaller rival and consolidate portfolios after announcing the acquisition of Leagold Mining (TSX: LMC) for C$769.3 million (about $578 million).
The offer, which implies a no-premium consideration of C$2.70 per share, will add Leagold’s four mines in Mexico and Brazil to Equinox’s portfolio, consisting of two mines in California, US, and one in Brazil.
As part of the transaction, Leagold shareholders will get 0.331 of an Equinox share for each share they own and will hold 45% of the combined entity, led by mining veteran Ross Beaty, who is chairman of Equinox and Pan American Silver (TSX: PAAS).
The transaction includes a concurrent $670 million financing with Beaty and Mubadala Investment Company, the government of Abu Dhabi’s sovereign wealth fund, as cornerstone shareholders.
Deal adds Leagold’s four mines in Mexico and Brazil to Equinox’s two mines in California, US, and one in Brazil.
“This merger will create one of the world’s largest gold companies operating entirely in the Americas,” Beaty said. “Our large scale will provide improved liquidity, greater asset and country diversification and a lower risk profile for all shareholders. This is the kind of gold company investors want today.”
“The combination of Leagold and Equinox Gold will deliver on a promise we made to our shareholders when we launched Leagold three years ago: to create a major gold producer in a short time frame in anticipation of a new phase to the gold bull market that started in 2001,” the miner’s chairman, Frank Giustra, noted.
Equinox moved from developer to producer status in July, when it kicked off commercial production at its second gold mine, Aurizona, in northeastern Brazil.
The Vancouver-based company is also advancing construction at the previously-mined Castle Mountain, located about 320km north of its Mesquite operation, with the target of pouring first gold in the second half of 2020.
Last year, the firm spun-out its copper assets into a new company, Solaris Copper, and sold its 83% stake in the Koricancha gold mill in Peru to Inca One, as part of its ongoing plan to become a mid-tier gold producer.
The Equinox-Leagold business combination, expected to close in the first quarter of 2020, is just one of the many mergers and acquisitions that have swept the gold sector this year, with pending and completed deals worth $35 billion so far.
The announcement comes on the same day that Canada’s Endeavour Mining (TSX:EDV) and Egypt-focused miner Centamin (LON:CEY) (TSX:CEE) agreed to assess the merits of a merger that would create a strong mid-tier gold company with a market value of almost $4 billion and annual output of more than 1.2 million ounces.
