Agnico Eagle Mines Ltd. agreed to acquire Kirkland Lake Gold Ltd. in an all-stock deal to create a bullion giant in mine-friendly countries, heralding a potential wave of industry consolidation. The shares of both Canadian miners fell.
The transaction, valued at about $13.4 billion (US$10.6 billion), follows deals among the world’s biggest gold producers that have reshaped the industry in recent years. Gold mining reserves and mine lives are shrinking as a result of years of under-investment in exploration and development, while producers of the precious metal face rising production costs and inflation.
Investors will receive 0.7935 of an Agnico share for each Kirkland share held, the companies said Tuesday in a statement, describing the deal as a merger of equals. That represents a premium of about 1 per cent over Kirkland’s 10-day volume weighted average price in Toronto trading, they said. Barrick Gold Corp.’s 2018’s takeover of Randgold Resources set the tone for low- or zero-premium combinations in the industry.
Agnico shares fell 1.9 per cent to $62.57 at 9:34 a.m. in Toronto, while Kirkland Lake fell 9 per cent to $50.46, its biggest drop since November.
The merged miner will use Agnico’s name and have a board and management team drawing from both companies. Tony Makuch, currently Kirkland’s chief executive officer, will take the top job once the deal is completed, while Agnico CEO Sean Boyd will become executive chair.
The deal could herald more consolidation in the gold industry where investors look for deals that unlock value, add long-term value and add platforms to last for a long time, Agnico’s Boyd said during a call with analysts after the announcement.
“Both companies don’t have to do this,” Agnico’s Boyd said during the call. But “strategic rational makes sense and the industrial logic is there,” with a synergy of US$2 billion over the next ten years.
“We are positive on the low-premium deal and think the combination makes strategic sense, particularly with the Canadian focus and resulting high-quality portfolio,” Credit Suisse analyst Fahad Tariq said in a note.
Agnico had been shied away from large deals in the past, but this deal is “more about a number of mines and location of mines in terms of manageability, rather than an overall ounce number,” Boyd said. It’s also about the exploration potential where the merged company will be able to grow deposits and lifelong assets in “good parts of the world where you can actually do business.”
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2021-09-28 11:54:59Z
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