Argonaut Gold makes friendly $341-million deal to acquire Prodigy Gold

Mexican gold miner, Argonaut Gold (TSE:AR), reached a friendly $341-million deal to acquire Prodigy Gold (CVE:PDG), an exploration company that focuses on Eastern Canada.

After announcing the news today Argonaut Gold fell 6.87% to $9.67 a share during mid-day trading; Prodigy Gold was up 50% to 98 cents a share.

Argonaut also announced today that it achieved record gold production of 31,074 ounces during the third quarter, a 43% improvement over last year. The company operates the El Castillo Mine, which is located 100 km north of the city of Durango, Mexico, and the La Colorada Mine, which is located 50 kilometers southeast of Hermosillo, Mexico.

The company's total production guidance is estimated at 101-103,000 ounces of gold.

Argonaut's acquisition, Prodigy Gold, is advancing the Magino project, located northeast of Wawa, Ontario, which contains an Indicated resource of 6,250,990 ounces of gold (223.5 million tonnes grading 0.87 gpt gold and an Inferred resource of 355,190 ounces of gold (13.8 million tonnes grading 0.80 gpt gold) at a cutoff grade of 0.35 gpt gold.

Full news release regarding the acquisition is here.

Argonaut Gold and Prodigy Agree to Friendly Business Combination

TORONTO, ONTARIO and VANCOUVER, BRITISH COLUMBIA–(Marketwire – Oct. 15, 2012) – Argonaut Gold Inc. (TSX:AR) (“Argonaut Gold”) and Prodigy Gold Incorporated (TSX VENTURE:PDG) (“Prodigy “) are pleased to announce that they have entered into an agreement (the “Arrangement Agreement”) pursuant to which Argonaut Gold has agreed to acquire all of the issued and outstanding common shares of Prodigy by way of a Plan of Arrangement (the “Arrangement”). The combined entity will benefit from the strong operating experience and cash flow of Argonaut Gold and its ability to successfully advance Prodigy’s Magino gold project, which has an indicated resource of more than 6 million ounces (223 million tonnes at 0.87 g/t using a cut-off grade of 0.35 g/t).

Pursuant to the terms of the Arrangement announced today, Prodigy shareholders will receive 0.1042 of an Argonaut Gold share and C$0.00001 in cash per Prodigy share, representing C$1.08 per share based on Argonaut Gold’s 20-day volume-weighted average price (“VWAP“) and a premium of 54% based on both companies’ 20-day VWAPs as at October 12, 2012, the last trading day prior to this announcement. The transaction values Prodigy’s equity at approximately C$341 million on a fully diluted in-the-money basis and implies an enterprise value of approximately C$277 million.

Pro forma the transaction, Argonaut Gold will be owned approximately 78% by current Argonaut Gold shareholders and 22% by current Prodigy shareholders (based on fully diluted in-the-money shares outstanding). The terms of the transaction have been unanimously approved by both companies’ Boards of Directors, with the commitment of votes from all directors and officers of Prodigy, representing approximately 3.9% of Prodigy’s shares, having been secured.

Highlights of the Combined Entity:

Current production from two mines in Mexico and a strong pipeline of two developments projects in Canada and Mexico, representing a diversified asset portfolio in two premier jurisdictions for mine development and operation
If both development projects are advanced to production, Argonaut Gold is expected to enter the ranks of the intermediate producers and fulfill its stated goal of 300,000 – 500,000 ounces of gold production per year
In excess of 12 million ounces of measured and indicated gold resource including 1.2 million ounces of proven and probable gold reserve (fully broken out by category and property as described below)
Strong balance sheet with no debt
Current and projected future cash flow generation expected to self-fund future development, mitigating future financing risk
Strong management team and experienced Board of Directors with proven development and operating track record
Pete Dougherty, President and CEO of Argonaut Gold said, “We are very pleased to announce this transaction with Prodigy today. Magino is a highly attractive asset which has shown continued resource growth, and which we believe will provide a longer term production opportunity for Argonaut Gold shareholders. The Magino resource provides substantial flexibility for maximizing value creation using a higher grade cut-off. We believe the project can be “right-sized” for a company like Argonaut Gold to deliver the best returns to our shareholders, while providing further upside should the gold price maintain its strong performance. This transaction is both highly attractive to Prodigy shareholders as well as significantly accretive to Argonaut Gold shareholders on all key financial and operational metrics.”

Brian J. Maher, President and CEO of Prodigy said, “The transaction announcement today is the culmination of the success we have had growing and advancing the Magino project. We believe the price offered by Argonaut Gold is highly attractive for our shareholders, and that in addition to the premium our shareholders receive today, our shareholders now have the opportunity to participate in a company that has current production exposure and can both finance and develop Magino.”

Transaction Benefits for Argonaut Gold Shareholders

Magino represents a significant scale asset in the Argonaut Gold portfolio, and has the potential to allow Argonaut Gold to achieve or exceed its stated goal of 300,000 – 500,000 ounces of gold production
Magino is a multi-million ounce deposit which provides tremendous grade flexibility when considering development alternatives while pursuing the highest returns for Argonaut Gold shareholders
Timeline for Magino development provides for continued growth beyond Argonaut Gold’s existing organic growth projects with anticipated start-up well timed after San Antonio is targeted to start production
Provides geopolitical and asset diversification, and entry into another of the world’s most supportive mining jurisdictions
Fairness opinion received from the financial advisor to Argonaut Gold indicating that the transaction is fair from a financial point of view to Argonaut Gold
Transaction significantly accretive to all of Argonaut Gold’s per share metrics, including net asset value per share, resources per share, longer term cash flow per share, and longer term production per share
In addition to Magino, Argonaut Gold will gain exposure to Prodigy’s portfolio of other exploration stage assets
Transaction Benefits for Prodigy Shareholders

Significant premium of 54% to Prodigy shareholders based on both companies’ 20-day VWAPs as at October 12, 2012
All-share transaction provides Prodigy shareholders with exposure to current production and cash flow in a strong gold price environment and continuing exposure to the advancement of Magino as well as Argonaut Gold’s existing organic growth profile
Substantially decreases the financing risk for the project
Leverages Argonaut Gold’s highly experienced and successful management team
Argonaut Gold’s shares provide improved trading liquidity for Prodigy shareholders
Fairness opinion received from Prodigy’s financial advisor indicating that the transaction is fair, from a financial point of view, to Prodigy shareholders
Arrangement Agreement Summary

The Arrangement includes, among other things, certain standard conditions including receipt of approval of the shareholders of Prodigy and Argonaut Gold by the affirmative vote of no less than 66 2/3% and 50.1% of the shares voted, respectively, and receipt of court and stock exchange approvals. Special shareholder meetings for each company to vote on the transaction are expected to be held in December, 2012 with closing expected shortly thereafter.

The Arrangement Agreement is subject to customary non-solicitation provisions, subject to Prodigy’s right to consider and accept superior proposals. In the event of a superior proposal, Argonaut Gold will have a five business day right to match the superior proposal. If the Arrangement is not completed as a result of a superior proposal or in other certain specified circumstances, a termination fee equal to C$10.25 million will be paid to Argonaut Gold. The Arrangement Agreement also provides for reciprocal expense reimbursement under certain specific circumstances. After closing of the transaction, Prodigy will have the right to appoint one Director to the Argonaut Gold Board of Directors.

The terms and conditions of the Arrangement will be disclosed in more detail in the management information circulars which will be filed and mailed to Argonaut Gold and Prodigy shareholders in November 2012.

Advisors and Legal Counsel

BMO Capital Markets is acting as financial advisor and Fraser Milner Casgrain LLP is acting as legal counsel to Argonaut Gold and its Board of Directors. BMO Capital Markets has provided an opinion that, based upon and subject to the assumptions, limitations, and qualifications in such opinion, the consideration to be received by Prodigy’s shareholders is fair, from a financial point of view, to Argonaut Gold.

National Bank Financial Inc. is acting as financial advisor and DuMoulin Black LLP is acting as legal counsel to Prodigy. National Bank Financial Inc. has provided an opinion that, based upon and subject to the assumptions, limitations, and qualifications in such opinion, the consideration to be received by Prodigy’s shareholders is fair, from a financial point of view, to Prodigy shareholders.

Conference Call Details

Argonaut Gold and Prodigy will host a conference call to investors and analysts to discuss the transaction on October 15, 2012 at 9:00 a.m. EDT (6:00 a.m. PDT).

You will be able to participate in this call using the following details:

Conference Call Information:
Toll Free (North America) 1-877-440-9795
Toronto Local and International 1-416-340-8527
Webcast http://www.gowebcasting.com/3937

Conference Call Replay:
Toll Free Replay Call (North America) 1-800-408-3053
Replay Call 1-905-694-9451
Passcode 3150074
The conference call replay will be available from 12:00 p.m. ET on October 15, 2012 until October 29, 2012. The webcast archive will be available from 11:00 a.m. ET on October 15, 2012 for one year.

About Argonaut Gold

Argonaut Gold is a Canadian gold company engaged in exploration, mine development and production activities. Its primary assets are the production-stage El Castillo Mine in the State of Durango, Mexico, the La Colorada Mine in the State of Sonora, Mexico, the advanced exploration stage San Antonio project in the State of Baja California Sur, Mexico, and several exploration stage projects, all of which are located in Mexico.