Makuch gets top grade for deal
Makuch, the former president and CEO of Lake Shore Gold who took over the top job at Kirkland Lake in July last year, was working on the C$1 billion (US$740 million) Newmarket tie-up within months of his Kirkland Lake (TSX: KL) appointment.
The newly combined entity was guiding for 500,000-525,000oz production in 2017 at the outset, but after delivering more than 290,000oz in the first half that’s now 570,000-590,000oz at AISC of US$800-850/oz. Fosterville (H1 head grade of 17.9g/t) and Macassa (20.8g/t) have been the big drivers of the production surge, and KL’s near doubling of first-half free cash flow, year-on-year, to US$45 million that left the company with net cash of US$224 million at the end of June.
Kirkland Lake’s market value has surged to about C$3.39 billion on the back of a 76.8% rise in its share price in the past year. The company is currently paying C4c/sh in annual dividends.
It is also spending big on exploration – up to $55 million this year – as it seeks to further expand reserves at its high-grade Australian and Canadian hubs. Meanwhile, other operations in the Kirkland-Newmarket combination are also set to get some love as the company searches for its next big high-margin project.
Fosterville has unquestionably been a big driver of KL’s – and Makuch’s – fortunes. The company’s recent 110% increase in Fosterville underground reserves to 1.03Moz was an eye-opener.
“We now model average annual production of 185,000oz for Fosterville at a mine-site AISC of $645/oz over a period of 9.5 years at spot [gold prices],” RBC analysts said.
“At spot prices/currencies, we estimate average sustaining free cash flow [for KL] of US$167 million and operating free cash flow of $109 million through 2021, implying respective free cash flow yields of 7.4% and 4.8%. The ability to deliver strong free cash flow is highly dependent on ongoing high-grade exploration success at Fosterville, and the ability to consistently replace reserves at levels forecast, and mine close to reserve grades.”
Deal of the Year
The Kirkland-Newmarket merger was just pipped by Trilogy Metals’ (TSXV: TMQ) big deal with ASX-listed diversified miner South32 – worth up to US$150 million – to advance Trilogy’s Upper Kobuk Mineral Projects (UKMP) in Alaska, where the junior has already outlined more than six billion pounds of copper resources, as Mining Journal Americas Deal/Merger of the Year.
The innovative deal, announced in April this year has South32 committing to a US$10 million a year exploration spend for three years, giving it the option at any time to form the new 50/50 JV vehicle by tipping in the $150 million. Trilogy’s market cap this week was about C$129 million.
The company’s share price hit a high of C$1.56 last month but has eased to about $1.22. That’s a gain of 70% in the past year.
Trilogy president and CEO Rick Van Nieuwenhuyse said he believed the deal recognised the quality of the assets. “By offering to fund at a 150% premium to the investment made by Trilogy, the terms recognise the high-quality asset base that Trilogy has assembled at the UKMP. In terms of the option, South32 will invest up to $30 million to explore, expand and advance the already sizeable metal endowment identified to date.”
Another significant deal in the past 12 months was Eldorado Gold’s C$590 million Integra Gold acquisition – at a 52% premium to Integra’s prior (May 12) closing price and 46% premium using the usual volume weighted average prices of both companies for the 20 days before the deal was announced.
The bid by Eldorado for control of the Lamaque gold project near Val-d’Or in Quebec, and the high-grade mine producing 123,000ozpa at AISC of US$634 per ounce for at least a decade outlined in Integra’s February 2017 PEA, crystallised the wealth-build by the Vancouver junior during an aggressive exploration phase when the broader commodity equities space sunk and raising funds became difficult.
A lot of credit for Integra’s success has been given to wily corporate veteran George Salamis, but among the team on Salamis’ next venture – soon to be rebranded Integra Resources – is the man voted Mining Journal Americas’ Emerging Leader of 2017, Steve de Jong.
de Jong became CEO of Integra Gold in July 2012 when he was only 28 and the company was worth about C$10 million.
He will chair the new Integra.
Explorer of the Year
Perhaps the surprise packet in this year’s Mining Journal Americas awards is Explorer of the Year Tinka Resources (TSXV: TK), which beat a quality shortlist including Ecuador standout SolGold, emerging zinc player Arizona Mining, and rejuvenated Indin Lake gold explorer Nighthawk Gold to take out the prize.
Tinka’s market value has surged past C$120 million on the back of a 180% share price lift in the past year as strong results have continued to flow from exploration drilling at its 100%-owned Ayawilca zinc project in central Peru.
Judging the best
More than 60 reader nominations kickstarted this year’s Mining Journal Americas’ review of outstanding performance among Canadian and US-listed companies and leaders for the 2016-17 year. We – Mining Journal editors and four external judges – then looked at how equity markets had assessed the value created by strategic moves, exploration and also, inevitably, external factors that can reward exposure to the right commodities, locations and rocks.
Award categories – Mining Journal Americas Annual Awards for Excellence
– CEO of the Year
– New/emerging Leader of the Year
– Explorer of the Year
– Corporation Development: Deal and/or Merger of the Year
Our company leadership awards are aimed at recognising standout value creation as the baseline qualifier. But our judging group then took into account the full range of external and internal factors that may have figured in a value shift, including changes in commodity prices, significant sector and market specific changes, currency movements, and other macro factors; exploration success and/or M&A; as well as factors such as the overall relative quality of company senior management teams, and the base from which a company’s value changed.
In our New/Emerging Leader of the Year category we are looking for a CEO or managing director in that role for the first time.
The Explorer of the Year recognises outstanding value creation on the back of exploration success. This may or may not include generation of a maiden resource, or reserve. It can also recognise a significant new discovery.
Again, our judges assessed factors such as relative technical difficulty, and the magnitude of any technical success or breakthrough; the greenfields or brownfields nature of the discovery; the extent of predecessor work that might have contributed to a new find; and the relative application of exploration funds.
The Deal and/or Merger of the Year is the Mining Journal Americas corporate development award recognising successful execution of a strategy, and the resulting realisation of value.
We considered the nature of deals, how they were funded (and the environment), and the impact on balance sheets and how transactions leave companies in terms of their capacity to deliver value to shareholders.
Mining Journal’s senior editorial group, group editor Richard Roberts, global editor Dan Gleeson, Latin America editor Paul Harris and senior North America reporter Cameron French, joined with four experienced, external heads to weigh the pros and cons of nominee short lists.
From left: Neil Adshead, Joe Mazumdar, George Ireland and Jeff Parshley
Our external judges this year were George Ireland, CEO, chief investment officer and managing member, Geologic Resource Partners LLC; Cupel Advisory Corp director Neil Adshead; Exploration Insights principal Joe Mazumdar; and, Jeff Parshley, SRK group chairman.