Australian gold miner St. Barbara (ASX:SBM,OTC Pink:STBMY) has begun the process of acquiring Canadian-owned Atlantic Gold (TSXV:AGB,OTC Pink:SPVEF) in a plan of arrangement worth US$536 million, the companies announced on Wednesday (May 15).
As per the agreement, St. Barbara will offer C$2.90 per share, which represents a 39 percent premium to Atlanta Gold’s closing price on Tuesday (May 14). Analysts are touting the deal as a move that could lead to growth options, but may also create challenges for St. Barbara.
“Buying an unknown asset in a new country which itself potentially requires a fresh injection of capital … could present an additional barrier for some investors,” RBC Capital told Reuters.
By purchasing the Canadian miner, St. Barbara will be adding Moose River Consolidated, which is owned and operated by Atlantic Gold, to its portfolio.
“The addition of Moose River to the portfolio diversifies St Barbara’s production base with a low cost producing asset in a very favourable and prospective jurisdiction. It is a sustainable long life operation of scale with a low [all-in sustaining cost] AISC position which generates impressive margins,” said Bob Vassie, managing director and CEO of St. Barbara.
The bid already has the backing of Atlantic Gold’s board and comes on the heels of fellow Australian gold miner, Newcrest Mining (ASX:NCM,OTC Pink:NCMGF), purchasing a copper and gold mine from BC-based Imperial Metals (TSX:III,OTC Pink:IPMLF) for US$806.5 million in March.
Gold is up close to 9 percent year-on-year in Australian dollars, while gold priced in US dollars remains relatively flat. Those circumstances have put mergers and acquisitions (M&A) in the focus for Australian companies focused on the yellow metal.
In fact, many market watchers have already named Evolution Mining (ASX:EVN,OTC Pink:CAHPF) and Northern Star Resources (ASX:NST,OTC Pink:NESRF) as companies that will more than likely join in on the M&A activity that has been growing within the gold space.
“The high AU gold price has benefited Aussie gold miners but they have also done very well operationally,” said UBS (NYSE:UBS) analyst Dan Morgan. He added, “In aggregate they have focused on cashflow which investors have liked.”
In terms of the deal itself, Atlantic Gold says the offer delivers an attractive premium to shareholders and that directors and officers of the miner, who control 32 percent of shares, have already backed the takeover bid.
“(The deal) not only recognizes the value of our current plan for the MRC mine, but rewards shareholders for the future growth and exploration potential that defines MRC as a truly world class asset,” stated Steven Dean, chairman and CEO of Atlantic Gold.
Dean will be invited to join St. Barbara’s board and the company’s operating team will be retained.
Both companies anticipate that the deal will close sometime in July of this year.
As of 3:15 p.m. EDT on Wednesday, St. Barbara was trading at AU$3.32; meanwhile Atlantic Gold surged 37.56 percent to trade at C$2.88.
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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.