Brigus Gold
Primero Mining’s $220M Deal to Acquire Brigus Gold Brings Benefits for Both Sides
The merger between Primero Mining Corp. and Brigus Gold Corp. is the sort of logical mining deal that analysts and investors have been demanding for the better part of two years.
The Canadian capital markets are full of small gold companies with one or zero producing mines, and there is not enough capital available for all of them in a bear market for bullion. By merging, they lower their cost of capital, get better access to the capital markets and open themselves up to a much broader investor base.
Primero chief executive Joe Conway said there is no question that the industry needs more consolidation.
“We’ve heard that from the big investors pretty loud and clear,” he said in an interview. “Whether that will happen is another story.”
Primero’s $220-million, all-stock takeover of Brigus brings together two single-mine companies, and appears to have benefits for both sides. Primero gets to diversify out of Mexico by acquiring Brigus’s Black Fox mine in Ontario, as well as its Grey Fox development project. And Brigus gets a 44% premium bid for its shareholders, along with a resolution of its balance sheet problems.
Brigus was down to US$21.1-million in cash at the end of the third quarter. That was a serious concern, as the company had large repayments on its US$83-million debt load coming due in the next few years. The Black Fox mine also needs a capital injection for its underground development. Those are not problems for Toronto-based Primero, which is sitting on a cash pile of more than US$125-million.
The company was on the hunt for acquisitions for the past 12 months, as its strong cash position and relatively high valuation made it an obvious buyer. Mr. Conway said he evaluated many potential targets before deciding Brigus was the best one. He noted that Black Fox is a good operation from a technical standpoint, and there is a clear path for Primero to unlock value by making investments in the mine that would be extremely tough for Brigus.
The two companies began negotiating in June, and signed a confidentiality agreement in August that led to the deal. Other firms were eyeing Brigus, but Primero emerged as the ideal suitor.
“Primero is able to use its relatively strong balance sheet to opportunistically acquire a junior producer with balance sheet issues,” TD Securities analyst Steven Green said in a note.
Primero plans to spend US$40-million to US$50-million on exploration and development at Black Fox next year, and around US$20-million to US$30-million a year after that.
The new Primero is expected to have a market value of more than $700-million, with a potential increase in gold equivalent production from 250,000 ounces in 2014 to 400,000 in 2017. Cash costs are anticipated to be below the industry average.
Mr. Conway said the company is a good candidate for a re-rating by the market based on its ability to generate cash, even at low gold prices. But he still has to deliver — in recent years, many mining CEOs made similar claims after a major acquisition, only to see them turn out very badly.
Mr. Conway has plenty of experience with big transactions. During his long tenure as CEO of Iamgold Corp., he engineered a couple of key deals that transformed the company from a royalty firm into a significant gold producer.
Source: http://business.financialpost.com/investing/primero-mining-makes-220-million-all-stock-deal-to-acquire-brigus-gold?__lsa=6e52-d66e