Centerra Gold merges with Thompson Creek Metals in debt-focused deal

Thompson Creek Metals (TSX:TCM) will soon start operating its Mount Milligan copper-gold mine in British Columbia under a new name.

The American company on Tuesday was bought out by Toronto-based Centerra Gold (TSX:CG), whose ongoing dispute with Kyrgyzstan has provided a steady diet of mining headlines over the past few years. In June the disagreement took an ominous turn with authorities opening a criminal probe against managers at the firm’s giant Kumtor gold mine in the central Asian nation.

It seems pretty clear that Centerra’s decision to combine with Thompson Creek Metals was a bet on a safe mining jurisdiction: Canada. Along with Kumtor, Centerra also owns a mine in Mongolia- hardly a guarantor of financial certainty, as Turquoise Hill’s complicated relations with the Mongolian government over Oyu Tolgoi’s expansion will attest.

On Tuesday Centerra agreed to buy the Colorado-based miner and its nearly US$900 million in debt. The $1.1 billion deal will allow Thompson Creek’s creditors to be paid. Centerra will also raise $170-million through a bought-deal financing. When the merger completes in the fall, Centerra shareholders will own 92 percent of the two companies, with eight percent owned by Thompson Creek’s stockholders.

It seems pretty clear that Centerra’s decision to combine with Thompson Creek Metals was a bet on a safe mining jurisdiction: Canada.

Thompson Creek has been shopping around for a buyer for the past year. The clock was ticking because its debt was rated as junk and $300-million of it was maturing at the end of 2017, reported The Globe and Mail. Thompson Creek was also hurt by the slump in molybdenum, of which it used to be a large producer but had to cut production when prices fell, notes The Globe.

“The combination with Thompson Creek is a highly compelling transformative transaction that diversifies Centerra’s operating platform and adds low risk production and cash flow from a very high quality, long-lived asset in Mount Milligan,” Centerra CEO Scott Perry said in a statement, adding:

“The acquisition will establish an operating base in Canada –one of the lowest risk mining jurisdictions in the world– which will complement our Canadian-based Greenstone project (in Ontario) and provide for further flexibility to expand into the Americas.”

The deal also includes a revision of a metal streaming agreement between Thompson Creek Metals and Royal Gold (TSX:RGL) which partly helped to finance Mount Milligan after Thompson Creek bought the property in 2010. Royal Gold’s streaming interest on the mine’s gold output will be reduced to 35% from 52.25%, in exchange for the rights to 18.75% of the mine’s copper production.

Investors of both companies appeared to like the transaction. Shares in Thompson Creek Metals closed up 6.67% on the Toronto main board, and 1% for Centerra Gold.

Click here for the press release including highlights of the deal