TORONTO – Canadian gold and silver producer AuRico Gold Inc. (TSX:AUQ) has reached a friendly takeover agreement to acquire Northgate Minerals Corp. (TSX:NGX) in a stock-swap transaction valued at about $1.46 billion.
“We’re excited about this announcement given the acquisition will create a premier intermediate gold producer operating in three of the top mining jurisdictions in the world,” AuRico CEO Rene Marion said Monday during a conference call with analysts.
“The combined company will be underpinned by two cornerstone assets, Ocampo and Young-Davidson, potentially producing over 500,000 ounces of gold equivalent production per year once Young-Davidson is fully ramped up.”
AuRico operates the Ocampo mine in Chihuahua State, Mexico, among others, while Northgate’s Young-Davidson gold project in northern Ontario is targeting a 15-year mine life with average annual production of 180,000 ounces of gold commencing in 2012.
The combined companies will have six operating gold mines by next year and three additional gold development projects in Mexico, Canada and Australia.
Under terms of the deal, expected to close by the end of October subject to shareholder and regulatory approvals, Northgate stockholders will get 0.365 of an AuRico share for each of their shares. The offer, a 45 per cent premium to the 20-day average stock price of the two companies, works out to about $5.01 per Northgate share.
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The transaction puts a stop to Northgate’s planned acquisition of Primero Mining Corp. (TSX:P) for about US$409 million, announced last month. Primero will get a $25-million termination fee as part of their agreement.
AuRico had been looking at Northgate for some time but “subsequent to the announcement of the Primero transaction” it submitted a number of letters of intent “and eventually we got to the point where the Northgate board deemed this potentially a superior Northgate proposal,” Marion said.
“And then we spent last week in negotiation,” said Marion, who will remain as CEO of the combined entity in which current AuRico shareholders will hold 62 per cent of the stock and Northgate shareholders 38 per cent. AuRico will appoint six of nine members of the new board and Northgate three members.
AuRico shares declined $2.67 or 19.46 per cent to close at C$11.05 on the Toronto Stock Exchange, Northgate shares surged 83 cents or 26.77 per cent to $3.93 while Primero shares fell 67 cents or 16.18 per cent to $3.47.
AuRico, formerly known as Gammon Gold until it changed its name in May, owns three properties in Mexico, some of which it acquired as recently as April when it bought Capital Gold Corp. (TSX:CGC).
With the acquisition of Northgate, AuRico’s resources will increase from 10.3 million equivalent ounces to almost 19 million gold equivalent ounces, while production will increase from 280,000 ounces to 470,000 ounces in 2011 and 730,000-plus ounces in 2013.
“The combination with Northgate will maintain our unhedged exposure to gold and silver in the current record-breaking gold price market” and at the lowest quartile cash cost of production, Marion said.
AuRico also expects “significant synergy through the utilization of our tax-loss pools, SG&A (selling, general and administrative expenses) and operating and equipment synergies” while the expanded development asset portfolio will create a long-term pipeline for future growth, he added.
Marion said that in the short term – which he described as “perhaps the first year” the new company will be run as two subsidiaries. The AuRico team will focus on the Mexican arm, while Northgate management makes sure that “we don’t trip up” on commissioning Young-Davidson.
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