Agnico Eagle Mines Ltd plans to acquire Kirkland Lake Gold Ltd in an all-stock transaction that the companies say would make it a “true Canadian mining champion”, but the deal received a lukewarm reception on Bay Street, some Investors questioned the strategic. Argument.
Toronto-based Agnico said Tuesday that it intends to pay 0.7935 of its shares for each Kirkland share, or about 1 percent more than Kirkland’s average over the 10-day period last Friday, essentially Makes it a zero-premium deal. at over $13 billion. Over the years, zero-premium deals have grown in popularity, with Barrick Gold Corp acquiring RandGold Resources Ltd in 2018 for US$6 billion in a deal that was widely appreciated by shareholders.
The deal didn’t have as enthusiastic a response, partly because the news leaked ahead of time, prompting shares in Kirkland to rally. On Monday, mining blog IKN reported that several large companies, including Barrick Gold, Newcrest Mining and Newmont Mining, were in contention to buy Kirkland. By the time the deal was announced on Tuesday, any hope among buyers of Monday’s premium had vanished, with Agnico offering Kirkland at $50.06 per share, or more than $5 less than its previous close. presents. Shares of Kirkland fell 7.8 per cent on the Toronto Stock Exchange on Tuesday, while Agnico’s shares fell 1.2 per cent.
“It was unfortunate that this happened,” Kirkland’s chief executive officer, Tony Makuch, said in an interview, referring to the leak.
How Kirkland Lake Transformed From Gold Sector Rump To Agnico-Eagle’s Prized Asset
In the deal, Agnico, already one of the most valuable companies in the industry, will add three gold mines to its existing portfolio of nine. Agnico, which has operations in Canada, Finland and Mexico, will acquire assets in Canada and Australia. Agnico’s reserves would roughly double to 48 million ounces of gold. Its long-serving chief executive, Sean Boyd, will move in as executive chairman, with Mr Macuch becoming Agnico’s CEO if the deal closes.
Mr Boyd and Mr Macuch found themselves on the defensive in a conference call with analysts on Tuesday. RBC Dominion Securities analyst Josh Wolfson questioned why Kirkland, who has been a star performer over the years, would want to sell himself at this juncture. He also wondered why Agnico, which has historically shunned big risky mergers and acquisitions, would take such a huge swing.
“We have not increased the risk profile of this business. We’ve really put two low-risk businesses together,” Boyd said in response, adding that Agnico would only acquire a small number of mines in the most mining-friendly jurisdictions in the world.
Mr Macuch said Kirkland would grow rapidly if acquired by Agnico, if it remains a standalone. He specifically pointed to potential future developments coming from the Malartic mines in Laronde and Quebec of Agnico.
“Nobody is trying to fix the problem here. We’re trying to make a better company,” Mr. Makuch said.
For Kirkland, if the deal goes through, it would be the end of the road to a resounding success story over the past five years. The company has been one of the best performers in Australia due to its highly-rated Fosterville gold mine, and its initially unpopular, but ultimately well received, acquisition of Detour Gold Corp in 2020.
Over the past few years, the global gold industry has rapidly consolidated with a number of large deals, including Barrick’s buying of RandGold, and Newmont Corp. buying Goldcorp Inc. for US$10-billion. Investors have generally welcomed deals with little or no acquisition premium.
But Scotia Capital Inc. The lack of premium in the Agnico-Kirkland deal means competitive bids are possible, analyst Owais Habib said in a note to clients. “Interloper odds are higher than normal,” he wrote.
Gordon Bogden, senior advisor at Origin Merchant Partners and a veteran investment banker on several mining company boards, said he expects Kirkland Lake to drive a robust sales process “where all the obvious buyers will have been contacted.”
“Another bid is likely, but unlikely,” said Mr Bogden, who was director at IAMGold and Royal Gold.
In the past, mining companies have been criticized for acquisitions in which buyers pay more, then write off the value of the mines they acquire. Mr Bogden said that over a decade-long period beginning in 2005, research shows that a flurry of acquisitions in the gold industry destroyed US$130 billion of value for shareholders. As a result, Mr Bogden said the boards of the acquiring companies are more receptive to equivalent mergers such as Agnico Eagle’s consortium with Kirkland Lake, where no acquisition premium is paid.
Joe Foster, portfolio manager at New York-based asset management firm VanEck, which is a major shareholder in both Agnico and Kirkland, also thinks the high bid for Kirkland is less likely, as investors generally haven’t offered premium deals. Strong welcome. “Other companies will be very reluctant to come out on top,” he said.
If a high bidder flips Kirkland, the break fee payable to Agnico is $450 million, or 3.8 percent of Kirkland’s market value. The Shareholders Gold Council’s industry advocacy group recently criticized the gold industry for break fees, which it says are too high, saying they turn off potential bidders and make the bidding process less competitive. . The group is pushing for a maximum of 1 percent to be the industry standard.
Your time is valuable. Get the Top Business Headlines newsletter conveniently delivered to your inbox early morning or evening. .