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This week got off to a late start due to Monday holidays in the United States and much of Canada, but Timmins Gold and Newstrike Capital were back in full force Tuesday with the announcement that Timmins will be acquiring Newstrike.
This week got off to a late start due to Monday holidays in the United States and much of Canada, but Timmins Gold (TSX:TMM,NYSEMKT:TGD) and Newstrike Capital (TSXV:NES) were back in full force Tuesday with the announcement that Timmins will be acquiring Newstrike.
A definitive arrangement agreement will see Newstrike shareholders receive 0.9 of a Timmins Gold common share and C$0.0001 in cash for each common share of Newstrike that they hold — that equates to C$1.15 per Newstrike common share and is a premium of 20 percent on the companies’ closing share prices on February 13, 2015. Meanwhile, it’s a premium of 22.4 percent on the 20-day volume weighted average for the companies’ share prices.
The transaction came about following a sales process initiated by Newstrike, which went with Timmins in part due to its mine-building team. The companies emphasize in their press release that it’s aimed at creating “an emerging, Mexican-focused intermediate gold mining company with a portfolio of high-quality production and development assets all based in Mexico.”
And indeed, the combined company sounds promising — it will include Timmins’ producing San Francisco mine, located in Sonora, as well as its Caballo Blanco project and Newstrike’s Guerrero-based Ana Paula project. The press release describes Caballo Blano and Ana Paula as “robust development assets,” and preliminary economic assessments have been completed for both.
Other highlights of the deal include:
- Enhanced production potential: Assuming Ana Paula and Caballo Blanco both move into production, Timmins’ life-of-mine average annual gold production is expected to jump by 175 percent. Yearly output should total 326,000 ounces of gold, while all-in sustaining cash costs per ounce should fall by 21 percent, to under US$780 per ounce.
- Manageable capital requirements: Capital requirements should be manageable and are expected to be supported at first by cash flow from San Francisco.
- Increased resource size: Timmins’ total measured and indicated gold resources will rise 75 percent when the acquisition is complete, while measured and indicated gold grade will jump by 34 percent.
Both companies are pleased with the transaction. Timmins CEO Bruce Bragagnolo commented on the fact that the companies’ projects are “highly complementary,” while Richard Whittall, president and CEO of Newstrike, noted that it will benefit Newstrike shareholders. “We believe the consideration offered by Timmins Gold is highly attractive for our shareholders who will also have the opportunity to participate in the growth and re-rating potential of the combined company,” he said.
In terms of what’s next, the companies said in a conference call Tuesday morning that the acquisition will be put to a shareholder vote at the end of April, with closure coming shortly thereafter.
Longer term, it sounds like Timmins will be doing a lot of work at Ana Paula and Caballo Blanco. In terms of the former, the plan is to build on Newstrike’s preliminary economic assessment, largely via further metallurgical testwork and drilling. That will take six months to a year, after which point Timmins will start sourcing equipment. The company does not anticipate permitting issues. For the latter, the plan is to take another look at environmental work, with a clearer idea of the path forward coming in the next few months.
Looking at the market as a whole, it’s interesting to note that Timmins’ acquisition of Newstrike is just a small part of the M&A activity taking place in the gold space lately. Notable events include Goldcorp’s (TSX:G,NYSE:GG) takeover of Probe Mines (TSXV:PRB) and, more recently, the merger between Tarsis Resources (TSXV:TCC) and Estrella Gold (TSXV:EST).
As of 1:50 p.m. EST, Newstrike’s share price was up a modest 3.13 percent, at $0.99. Timmins’ was sitting at $1.15 on the TSX, down 10.16 percent, and at $0.924 on the NYSE MKT, down 8.49 percent.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Newstrike Capital is a client of the Investing News Network. This article is not paid-for content.
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