Canada’s Kirkland Lake soars after Gold Fields confirms $1.4bn rejected offer
South Africa’s Gold Fields (JSE, NYSE: GFI) confirmed Monday that it had made three unsolicited bids in conjunction with Silver Standard Resources (TSX:SSO) for Canada’s Kirkland Lake Gold (TSX:KLG), which the Toronto-based miner rejected.
Gold Fields, the world’s seventh-largest bullion producer with operations from Australia to Peru, also said it had recently sweetened the bid to about $1.4 billion, but it was still found unattractive by Kirkland Lake.
Had Gold Fields and Silver Standard succeed in their bid, it would have scuppered Kirkland Lake’s planned acquisition of Newmarket, which will see the creation of a new, low-cost gold player.
The offer came on the heels of the Canadian miner’s recent move to buy fellow bullion miner Newmarket Gold (TSX:NMI) in an all-stock deal worth about Cdn$1 billion ($764 million). If approved, and the miner is asking shareholders to do so, such deal will create what the firms said will be a low-cost producer with operations in Canada and Australia.
Had Gold Fields and Silver Standard succeed in their bid, it would have scuppered Kirkland Lake’s planned acquisition of Newmarket, which will see the creation of a new gold player with a market capitalization of about Cdn$2.4 billion and annual production of more than 500,000 ounces of the yellow metal a year.
"Despite the proposals from Gold Fields and Silver Standard, the majority of shareholders we have spoken with and our board remain steadfast in their belief that the Newmarket transaction represents a clear and compelling opportunity to create sustained, long-term value for all Kirkland Lake Gold shareholders," the company's President and CEO, Tony Makuch, said in Monday's statement
Kirkland Lake owns five former mines north-eastern Ontario, which produced 22 million ounces of gold at an average grade of 15.1 grams per tonne. With its high-grade production and reserves located in a safe, mining-friendly jurisdiction, the firm’s appeal has been strengthened by a scarcity of growth opportunities in the gold sector. The firm also has more than $200 million of cash and equivalents on hand.
After hitting prices close to a six-year low in December in 2015, gold has steadily recovered this year, prompting a significant number of mergers and acquisitions in the sector.
In February, Tahoe Resources (TSX, NYSE:THO) agreed to acquire Toronto-based miner Lake Shore Gold (TSX:LSG) in a Cdn$945 million ($680 million) all-share deal.
In July, Goldcorp. Inc. (TSX:G) finalized the acquisition of Vancouver junior miner Kaminak Gold Corp. (TSX-V: KAM:), announcing it was also moving to acquire a 20% stake in another Canadian junior, Independence Gold Corp.
Analysts predict even more deals of this kind in the next three to six months, especially in Canada. However, BMI Research expects the market to remain dominated by the usual suspects — Barrick Gold, Goldcorp and Yamana Gold—, which will keep focussing on maintaining competitive cash costs and shedding non-core assets.
Shares in Kirkland Lake Gold were up 3.6% to Cdn$8.33 at 10:50 am ET. The stock is up 72% so far this year.