Yamana Gold to acquire Monarch in $114 million deal

The past-producing Wasamac gold mine in Quebec, circa 1984. (Image courtesy of Monarch Gold.)

Yamana Gold (TSX: YRI) (NYSE, LON: AUY) is expanding its footprint in the precious metals-rich Abitibi region of Quebec, Canada, by acquiring all shares in smaller rival Monarch Gold (TSX: MQR) it does not already own for C$152 million (about $114 million).

The cash and share deal gives Yamana the Wasamac property, which is about 100 km from its 50%-owned Canadian Malartic mine, as well as Camflo mill, also in Quebec.

Monarch said it would first spin off its other mineral properties and certain other assets and liabilities into a new company.

Deal gives Yamana the Wasamac property, which is about 100 km from its 50%-owned Canadian Malartic mine, as well as Camflo mill

Each outstanding common share of Monarch will then be exchanged for 19.2 cents in cash, 0.0376 of a Yamana share and 0.20 of a share in the new miner.

Once the transaction is completed, Monarch’s shareholders will own 1.3% of Yamana and 100% of the new miner and Yamana will own 100% of Monarch.

The new company will hold Monarch’s Beaufor mine, McKenzie Break property, Croinor Gold property, Swanson property and the Beacon Gold asset.

The Wasamac gold project is 15km west of Rouyn-Noranda in the Abitibi region of Quebec, while the Camflo property is 15km northwest of Val-d’Or.

Yamana said the asset held the potential to be an underground mine achieving the same scale, grade, production and costs as its Jacobina mine in Brazil and its Canadian Malartic as well.

Wasamac has existing proven and probable mineral reserves of 1.8 million ounces of gold. The property includes three mining concessions and 30 mining claims covering a total area of 17.39 square kilometres.

According to a December 2018 feasibility study, Wasamac will be a 6,000 tonnes-per-day operation. The mine is expected to churn out 142,000 ounces of gold a year for 11 years, at an all-in sustaining cost of $630 per ounce.

Initial capital investment has been estimated at C$464 million.

Progressive takeover

Yamana Gold had its eyes on Monarch for a while. In June, the senior gold producer invested C$4.2 million in Monarch’s C$5.4 million private placement.

“It’s possible for Yamana to eventually sell 50% of the Wasamac gold project to Agnico Eagle, its partner in the Canadian Malartic mine”

Jackie Przybylowski, BMO Analyst

Monarch filed a project notice for Wasamac with Quebec’s Ministry of the Environment and the Fight Against Climate Change in November last year. That is the first step in the mining permit application process, which generally takes 18 to 24 months, which means Yamana could have a new producing mine early next year.

Farooq Hamed of Raymond James was positive about the deal. “Overall, we view this acquisition as a good tuck-in for Yamana as it adds nearly 2 million oz. of reserves in Quebec with a project that has undergone a feasibility level review,” he said in a research note.

BMO analyst Jackie Przybylowski said Yamana’s latest move may end up with the company selling the Wasamac gold project to its Malartic joint venture partner Agnico Eagle.

Przybylowski noted it could also lead to further acquisition activity in the Abitibi region.

If Yamana itself, Agnico Eagle, or Eldorado were looking for further tuck-in acquisitions in the region, the analyst believes there are a few companies that would fit that bill. Those include Probe Metals, Radisson Mining, Amex Exploration and O3 Mining.

Larger companies that could also serve to boost production and the longer-term pipeline in the Abitibi include Wesdome Gold Mines, Wallbridge Mining, and Osisko Mining, Przybylowski wrote in a note to investors.