Australian gold producer St. Barbara (ASX: SBM) is buying smaller Canadian rival Atlantic Gold Corp (TSX-V: AGB) for C$722 million ($536 million), in the last of several mergers and acquisitions targeting mostly the gold sector taking place this year.
The Melbourne-based miner offered C$2.90 a share for Vancouver-based Atlantic Gold, a 39% premium to Tuesday’s close, and will fund the deal from cash reserves and by raising about A$490 million ($340 million) in a share sale to existing holders.
The bid, already approved by St. Barbara’s investors, would give the company access to Atlantic Gold’s Moose River complex in Nova Scotia, which comprises one producing open-pit (Touquoy) and three others in development (Beaver Dam, Fifteen Mile Stream and Cochrane Hill).
“St Barbara’s offer not only recognizes the value of our current plan for the MRC Mine, but rewards shareholders for the future growth and exploration potential, Atlantic Gold’s chairman and chief executive, Steven Dean, said in a separate statement.
The Moose River mine has become a large employer, with 280 full-time workers at the site and an additional 40 to 70 contractors. Many are Nova Scotians who have returned to their home province after working abroad or elsewhere in Canada.
Gold was first discovered in the area in 1866 and in the 1930s an underground mine produced 26,000 ounces of gold, which was largely taken from quartz veins but also from open-slate quarries.
Following the highly publicized multi-billion mergers of Barrick – Randgold and Newmont – Goldcorp, the global gold sector is going through an anticipated wave of consolidation that so far seems to be mostly focused on Canada.
“We can expect even more M&A activity in the near future,” Dean Braunsteiner, PwC Canada National Mining Leader said last month. “That creates a cascading effect of further deals as companies sell off non-core assets, which brings new opportunities for management teams to build the next big Canadian mining company.”
BMO analysts said the announced acquisition highlights the valuation gap between Australian and Canadian gold producers, creating an environment ripe for consolidation.
“Australian producers currently hold the upper hand in valuation, FCF generation, and market caché to purchase Canadian assets, many of which have struggled mightily of late,” BMO Metals said in a note to investors. “We view the consolidation of Australian and Canadian mid-tier miners as inevitable.”
Much of the gold sector’s growth in Atlantic Canada — Nova Scotia, New Brunswick and Prince Edward Island — has occurred only in the last decade, as investors are slowly discovering the region’s potential.