As merger and acquisition activity heats up in the global gold sector, St Barbara (ASX: SBM) is one of the latest majors to make a bid – launching a C$722 million (A$768 million) offer for TSX-listed Atlantic Gold Corporation.
St Barbara has lobbed an all cash offer of C$2.90 per Atlantic share, with Atlantic directors which control 32% of the company executing a lock-up agreement in favour of the takeover.
With an equity value of $768 million, St Barbara’s bid has an enterprise value of C$802 million (A$854 million).
To partly fund the purchase, St Barbara will raise A$490 million via an underwritten non-renounceable entitlement offer.
St Barbara will fund the remainder of the purchase through its existing cash reserves. And to ensure the combined entity has enough cash during the first three years of consolidation, St Barbara has secured a A$200 million three-year revolving loan facility with Westpac Banking Corporation.
Once the acquisition is complete, Atlantic will de-list from the TSX. Additionally, Atlantic chairman and chief executive officer Steven Dean will join the St Barbara board.
“St Barbara has today announced the acquisition of Atlantic, owner and operator of Moose River,” St Barbara managing director and chief executive officer Bob Vassie said.
“St Barbara has consistently communicated to the market that the company has been assessing a range of inorganic growth opportunities and the acquisition today demonstrates the company’s commitment to executing inorganic growth that is strongly aligned with St Barbara’s strategic plan,” he explained.
Excluded from the transaction is Atlantic’s 36% stake in Velocity Minerals, which has a market value of around A$9 million. Once the merger has been completed, Velocity will be spun out to existing Atlantic shareholders.
Rationale for Atlantic acquisition
According to Mr Vassie, Atlantic’s low cost Moose River gold operation will diversify St Barbara’s production base.
Moose River has been in commercial production for more than 12 months, with mining carried out at the Touquoy open pit.
During 2018, 91,000 ounces of gold was generated from Touquoy with all in sustaining costs (AISC) averaging at C$731 per ounce (A$761/oz).
Atlantic is firming up three other deposits at the project and plans to expand production to more than 200,000oz gold per annum.
Underpinning these plans, is a 2.4Moz gold resource, including reserves of 1.9Moz.
Commenting on Moose River, Mr Vassie said it was a “sustainable long-life operation of scale with a low AISC position, which generates impressive margins”.
“The asset also has significant growth potential, which St Barbara identifies as an exciting opportunity.”
He added the Moose River team has an “excellent track record” in bringing assets online and the team will be retained. He said that he was confident the project would be successfully integrated into St Barbara’s portfolio.
Both companies anticipate the acquisition will be completed by the end of July this year.
However, the acquisition remains subject to relevant regulatory and shareholder approvals.
Consolidation in gold space
St Barbara’s bid follows the path of other majors including the proposed Barrick Gold and Newmont tie up that was announced in late February, with the planned combined entity to be worth US$42 billion.
However, Newmont rejected Barrick’s unsolicited bid, instead proposing a joint venture for the duo’s Nevada operations in the US to create the world’s largest gold producing operation.
Meanwhile, with reports that Australia’s gold production could fall as much as 40% by 2024, S&P analyst Christopher Galbraith told Small Caps if a similar degree of consolidation activity was carried out in Western Australia, it could change the region’s cost profile and boost the profitability of the area’s gold mines.
By mid-morning, shares in St Barbara remained steady at $3.32.