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Yamana executes friendly acquisition of Monarch Gold, new Kidd twist?

Nov 2, 2020

YAMANA GOLD INC. has entered into a definitive agreement with Monarch Gold Corporation whereby Yamana will acquire the Wasamac property and the Camflo property and mill. 

In May of this year, MONARCH entered into a memorandum of understanding with Glencore Canada Corporation in connection with the potential use of Glencore's Kidd concentrator in Timmins, for the treatment of ore to be mined from Monarch's Wasamac gold property located in Québec.

Yamana will acquire all of the outstanding shares of Monarch not owned by Yamana under a plan of arrangement for consideration, including cash and shares, of approximately C$152 million.

In connection with the plan of arrangement, Monarch will complete a spin-out to its shareholders, through a newly-formed company of its other mineral properties and certain other assets and liabilities of Monarch.

Highlights of the Transaction

  • Adds the Wasamac project to Yamana’s Canadian exploration portfolio
    • Monarch’s principal asset is the Wasamac gold underground project, located 15 kilometres west of Rouyn-Noranda in the Abitibi region of Quebec adjacent to the Trans-Canada highway and Ontario Northland rail line, and 100 kilometres from the Company’s 50%-owned Canadian Malartic mine.
    • Wasamac consists of five well developed ore shoots within a single, continuous shear zone with a consistent grade distribution and wide mining widths, making it amenable to simple, productive, and cost efficient underground bulk mining methods.
    • The project has existing proven and probable mineral reserves of 1.8 million ounces of gold at 2.56 grams per tonne.(1)Mineral resources and proven and probable mineral reserves are supported by a Feasibility Study(1) previously completed by Monarch Gold in 2018 (the “Wasamac Feasibility Study”), and Yamana completed independent geological modelling, mineral resources and mineral reserves validations, among other extensive work, as part of its due diligence reviews to ensure greater levels of accuracy. There remains excellent potential for significant future exploration success and mineral resource conversion, with the deposit remaining open at depth and along strike.
    • As part of its due diligence on the property, the Company conducted several site visits in full compliance with provincial protocols for the prevention of COVID-19.
    • The currently defined deposit is situated at shallow depths in comparison to other Abitibi mines. Current known mineralization reaches a depth of approximately 800 metres, which offers the opportunity for ramp access at low relative up-front development costs over a relatively short development time frame.
    • Wasamac fits well into the exploration and development strategy of the Company, which aims to develop properties in mining friendly jurisdictions with mineral inventories of over 1.5 million ounces that can support production levels of over 150,000 ounces per year that can be built with internal cash flows.
    • The Company plans to build on the ongoing permitting and social licensing effort carried out by Monarch, applying Yamana’s strong ESG framework and best practices, and leveraging the Company’s extensive experience in permitting and proven track record of building strong, respectful, and mutually beneficial relationships with the communities and governments wherever it operates.
  • Geology and mineralization well-suited to Yamana’s expertise
    • The geological characteristics of the Wasamac ore body suggest it holds the potential to be an underground mine achieving the same scale, grade, production, and costs as Yamana’s successful Jacobina mine in Brazil, and it possesses many parallels to the Company’s 50%-owned Canadian Malartic Underground Project located in the same Abitibi region in Quebec.
    • The Company will target increasing the inventory and perform optimizations to further enhance the project’s value, advance engineering, and de-risk execution, leveraging Yamana’s technical expertise and adhering to the Company’s disciplined capital approach.
    • Building off the work completed to date, Yamana plans to commence an exploration and infill drilling campaign and other studies to refine and expand upon the potential of Wasamac and its development alternatives.
    • The Company will provide an update on its plans for the Wasamac project by the third quarter of 2021.  
  • Other Assets
    • The Camflo property, located 15 kilometres northwest of Val-d’Or, includes the old Camflo mine, which closed in 1992, and a permitted mill. The property has not been explored since the mid-1980s and Yamana believes it has good exploration upside. Monarch has digitized historical exploration data, which Yamana intends to review, after which it will make a determination whether to commence an exploratory drill program.
  • Total Consideration Paid
    • Under the terms of the Transaction, Monarch shareholders will receive C$0.63 per Monarch share (the “Total Consideration”), comprised of: 0.0376 of a Yamana share (valued at C$0.288 based on the volume weighted average price of Yamana shares on the TSX for the 20-day period ending on October 30, 2020); C$0.192 in cash; and 0.2 of a share (valued at C$0.15 per Monarch share) of SpinCo, a newly-created exploration company that will hold Monarch’s remaining pipeline of development and exploration projects.
    • The total Yamana consideration (the “Yamana Consideration”) is valued at approximately C$152 million and comprised of 0.0376 of a Yamana share and C$0.192 in cash per Monarch share. This represents a value paid of approximately $71(2) per ounce of mineral reserves or $44(2) per ounce of mineral resources as defined in Wasamac’s mineral reserve statement for the Wasamac Feasibility Study.(1)(3)
    • The transaction is accretive to Yamana on all longer-term metrics and is being achieved at an attractive multiple to NAV and is particularly compelling when considering the stage of the development of the project and its location.

Strategic Rationale

The acquisition provides Yamana with a high-quality project with a significant mineral reserve and mineral resource base and excellent potential for further expansion. The acquisition adds to the Company’s footprint in the Abitibi region, which is consistent with Yamana’s strategy to build on its existing presence in established mining jurisdictions where it has deep technical, geological, and operational expertise. In addition, the acquisition of the Wasamac and Camflo properties adds to Yamana’s pipeline of organic opportunities, significantly enhancing the Company’s future growth prospects. The Company has considerable experience in large bulk tonnage underground mines, experience which will support the development of Wasamac. Furthermore, the acquisition aligns with the Company’s strategy for a balanced approach to capital allocation, as discussed further in the section that follows.

Tags: Quebec / Deals & Financial / Gold / All Articles