M&A Continues as Paramount Gold Nevada Buys Calico Resources

Last week brought a slew of M&A activity in the gold space, with notable deals including Silver Standard Resources’ (TSX:SSO,NASDAQ:SSRI) acquisition of Claude Resources (TSX:CRJ) and First Mining Finance’s (TSXV:FF) purchase of the Pitt gold property from Brionor Resources (TSXV:BNR). 
Yet another deal hit the table Monday, with Paramount Gold Nevada (NYSEMKT:PZG) announcing plans to acquire Calico Resources (TSXV:CKB). Calico owns the Oregon-based Grassy Mountain gold-silver project, which it completed a preliminary economic assessment (PEA) for in 2015 and bills as “an excellent economic opportunity in the current gold price environment.”
According to a press release from Paramount, the companies have entered into a definitive arrangement agreement under which Paramount will acquire each common share of Calico for 0.07 of a Paramount share. That represents an implied offer price of $0.112 per Calico share, and is a premium of 49.2 percent based on the companies’ share prices on the last trading day before the deal was announced. All in all, the deal is valued at around $11.5 million.

Commenting positively on the news, Glen Van Treek, president and CEO of Paramount, said, “[w]e believe that advancing [Grassy Mountain] to prefeasibility will add significant value to our shareholders. This acquisition is consistent with Paramount’s strategy of acquiring mineral properties with known deposits in safe jurisdictions and advancing them towards production.”
Calico President and CEO Paul Parisotto also seems pleased with the news. In a separate press release, he noted, “[t]he board of directors of Calico believes that the proposed transaction will unlock the considerable value in our Grassy Mountain project for the benefit of our shareholders.” Parisotto added that he sees Grassy Mountain complementing Paramount’s Sleeper gold project in Nevada.
As mentioned, Calico has already completed a PEA for Grassy Mountain — the base-case scenario contemplates average annual production of 53,000 ounces of gold and 82,000 ounces of silver over a mine life of 10 years. The project’s pre-tax NPV stands at $144.2 million at a 5-percent discount, while its pre-tax IRR sits at 32.6 percent (assuming a gold price of $1,300 per ounce and a silver price of $17.50 per ounce). Life-of-mine cash operating costs are set at $578 per gold equivalent ounce.
Meanwhile, an updated PEA for Sleeper, completed after Paramount was spun out after Coeur Mining’s (NYSE:CDE) acquisition of Paramount Gold and Silver, lays out a base-case scenario of annual output of 102,000 ounces of gold and 105,000 ounces of silver over the course of seven years. The project’s pre-tax NPV is $201.8 million at a 5-percent discount, while its pre-tax IRR is 28.4 percent (assuming a gold price of $1,250 and a silver price of $16). Life-of-mine cash operating costs stand at $529 per gold equivalent ounce.

As of 3:30 p.m. EST on Monday, Paramount’s share price was up 0.17 percent on the NYSE MKT at $1.21. Calico’s share price was up an impressive 33.33 percent on the TSXV, changing hands at $0.10. Paramount expects the transaction to close in Q2 2016.
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 
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