Bold Gold Deals Move Increasingly Into the Money
Issue 77, March 2014
...the Midas mill.
Klondex expects output of 70,000 to 100,000 gold equivalent ounces this year, the company’s first year of production, rising to over 120,000 in 2015. “The acquisition transforms Klondex from an explorer, only a year ago, to a producer with fully-integrated operations,” said chairman Blair Schultz.
Franco-Nevada has deployed over $240m into the gold market in the last 6 months, buying a portfolio of royalties off Barrick for $21m a 2.5 per cent royalty over Kirkland Lake’s properties in Ontario and a $135m streaming deal with Teranga Gold in Senegal, allowing Teranga to pay down debt and consolidate its Oromin asset.
Tellingly, the deals all cover primary product, demonstrating the steady ascent of streaming and royalty finance from its byproduct days of the past.
Franco also contributed $35m to Klondex’s purchase of the Midas mine and mill, which Franco originally discovered and built in the 1990s, leading to its buyout by Newmont in 2002. The deal provides Klondex with a gold loan, lapsing into a royalty over both its Midas and Fire Creek mines.
“Investors can bear giving up only a certain share of the gold optionality. Debtors will only share so much security. Sometimes it helps for us to do a bit of both,” says Franco-Nevada’s president David Harquail, whose dog is named after the Midas mine.
Goldcorp launched a C$2.6bn ($2.4 bn) bid for Osisko Mining in January, having deftly sold 10 per cent of the company in 2011 for C$530m. Osisko’s Malartic mine in Quebec has low bulk tonnage-type grades, whacking shares with the spot price in 2013.
The move offered Goldcorp a cheap entry point and a chance to bump up its leverage to gold’s longer term move: Malartic is expected to churn out over 8m gold ounces over the next 16 years.
Osisko has derided the offer, calling it “price opportunistic.” Analysts have slammed it as “miserly”, but Goldcorp has so far faced down legal blocks to the bid. President Chuck Jeannes has indicated he is willing to lift the offer, if allowed to do so on friendly terms.
Silver Standard Resources
In February, Silver Standard agreed to pay $275m for Barrick and Goldcorp’s Marigold mine in Nevada, funded from cash and shifting its heart of production from Argentina to the US.
With remaining reserves of 4.9m gold ounces, Marigold reliably produces 140,000 ounces per annum, but the mine has been dogged by high costs, swallowing $300m in cap-ex in recent years. If the investment translates into efficiencies, Silver Standard will reap the rewards of Goldcorp’s focus on bigger mines and Barrick’s need for cash.
Agnico Eagle Mines
Agnico snapped up shares and warrants in 5 explorers last year, including up to 16 per cent of Probe Mines, at what may be prove to be the bottom of a torrid cycle for juniors. Probe has risen 185 per cent since Agnico’s entry, rising with grades at its Borden property in Ontario, whilst ATAC Resources and Peru’s Sulliden Gold have both also found new life this year.
Positions in Pershimco and Kootenay Silver are flat or underwater, but if Borden becomes Agnico’s next gold mine, its scattergun approach ought to reward its C$62m ($56m) foray into the market last year. Agnico’s flagship, La Ronde, was bought under a similar deal made in the 1970s.
US's largest silver miner plans flurry of royalty deals after $24m acquisition last year
New gold shoot positions Eleonore to become Canada's largest gold mine
Virginia Mines is approaching a cash flow bonanza, as Goldcorp nears production at Eleonore
Now is the time to buy assets says Franco's David Harquail,
with cash of $840m
"Get naked on the freeway and opportunity will come. Be seen and be in the way of opportunity."