Fortuna Silver to buy Roxgold in $884 million deal

Lindero mine in Argentina is Fortuna Silver’s newest operation. (Image courtesy of Fortuna Silver.)

Canada’s Fortuna Silver Mines (NYSE: FSM) (TSX: FVI) is buying fellow miner Roxgold (TSX: ROXG) in an all-share deal valued at about C$1 billion ($884.32 million), as strong gold prices spur a wave of mergers and acquisitions in the sector.

Vancouver-based Fortuna, which has operations in Peru, Mexico and Argentina, said the combined company would produce about 450,000 ounces of gold equivalent a year.

West-Africa focused Roxgold’s shareholders will receive 0.283 common shares of Fortuna and C$0.001 for each Roxgold common share held.

The exchange ratio implies a consideration of about C$2.73 per Roxgold share, a 42.1% premium to its last closing price.

Fortuna, which operates in Peru, Mexico and Argentina, would add Roxgold’s projects in Burkina Faso and Côte d’Ivoire to its portfolio

After the merger, existing Fortuna and Roxgold shareholders will own about 64.3% and 35.7%, respectively, of the combined miner.

Investors reacted negatively to the news, with Fortuna’s shares falling as much as 16% to C$8.09 during mid-morning trading in Toronto.

Fortuna’s chief executive officer, Jorge A. Ganoza said the acquisition of Roxgold will provide his company access to a complete business platform which brings low-cost gold production and a permitted feasibility-stage project in West Africa, along with a robust exploration pipeline and seasoned executive team. .

“We have followed the success of the Roxgold team for a number of years, from their early start at Yaramoko back in 2015,” Ganoza said on a conference call. “Since then, John and his team have successfully continued to expand their business in West Africa, and today, by combining our companies, Fortuna is gaining access to a platform for continued growth in one of the most prolific gold regions in the world.”

Gaining access to the Roxgold platform, Ganoza continued, “will mean 1) immediately adding low-cost production from Yaramoko; second, a permitted feasibility stage development project, Seguela, with 49% IRR and pre-operational capex under $150 million; third, a robust exploration pipeline; and fourth, a seasoned team of senior executives and site managers with a track record of success discovering, developing and operating mines in the region.”

Roxgold’s boss John Dorward said the transaction would provide the company’s shareholders with an immediate premium and a “unique opportunity” to participate in the creation of a new global mid-tier precious metals producer, with significant organic growth and cash flow generating potential.

The terms of the deal include a $40 million termination fee, and the transaction is expected to close by the end of June or early July.

Craig Stanley, a mining analyst who covers Roxgold at Raymond James, wrote in a research note that the company “could be in play” and said there are two significant gold companies that are already in Africa that might be interested: Centamin (TSX: BEE; LSE: CEY) and B2Gold TSX: BTO; NYSE: BTG). 

M&A “second wave”

The gold sector has seen an influx of mergers and acquisitions in the past six months, fuelled by strong metal prices and pressure to replace reserves that have been mined.

Bank of America analyst Michael Jalonen predicted in a note early this year another round of consolidation for the industry in 2021 among small to medium-size gold miners.

Jalonen and his team noted that gold reserves have been falling since 2012, while gold output has remained stable. They added that an effective method to replenish depleted reserves was mergers and acquisitions. 

Yamana Gold (TSX: YRI) (NYSE, LON: AUY) expanded its footprint in the precious metals-rich Abitibi region of Quebec, Canada, by acquiring all shares in smaller rival Monarch Gold late last year.

Endeavour Mining (TSX: EDV), already West Africa’s top gold producer, followed suit and bought Teranga Gold, in an all-share deal worth C$2.44 billion ($1.86 billion), which created a top 10 gold producer.

Another Canadian miner, Equinox Gold (TSX, NYSE: EQX) acquired in December Premier Gold Mines, spinning out the Nevada assets in a new US-focused gold miner — i-80 Gold Corp. The new company began trading in Toronto earlier this month under the symbol IAU.

In January, Agnico Eagle Mines (NYSE:AEM) merged with TMAC Resources, adding 3.5 million ounces of reserves in the process. That more than replaces Agnico Eagle’s reserves mined last year.

Most recently, Scottie Resources (TSX-V: SCOT) and AUX Resources (TSX-V: AUX) announced a potential merger that would consolidate the two companies’ gold-silver holdings in the Stewart mining camp in British Columbia’s Golden Triangle. 

Junior Stratabound Minerals (TSX-V: SB), which is advancing its Golden Culvert project in southeastern Yukon, said last week it was acquiring California Gold Mining (CNSX: CGM) and its Fremont gold project in the US.

With contribution from the Northern Miner editor-in-chief Trish Saywell.