Kirkland Lake Gold (TSX: KL) shares fell sharply today after announcing a proposed all stock transaction for the acquisition of Detour Gold (TSX: DGC). The proposed transaction was announced this morning, with Kirkland proposing to pay 0.4343 shares per Detour Gold share.
The markets reacted rather negatively to the announcement, with Kirkland shares trading down $10.94, or -17.28% following the announcement. Critics have cited the large disparity between all-in sustaining costs of gold production between the two firms as a reason for concern. Detour is largely focused on open pit mining, whereas Kirkland Gold is focused on two underground mining operations with some of the lowest costs of production among miners.
Under the terms of the transaction, the resulting issuer is expected to be made up of 73% of Kirkland Lake, while Detour will amount to 27% ownership. The proposed price at time of announcement saw Detour Gold shareholders receiving approximately $27.50 per share held based on the 0.4343 exchange ratio, however after the close of today’s market, that price has fallen significantly to an estimated $22.75 per share. Detour as a result posted a price of $22.61 per share, up approximately 1.80%.
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The combined entity is expected to add another cornerstone operation to that of Kirkland. The firm currently has two major mining operations in production, one in Australia while the other is in Northern Ontario. The acquisition of Detour will add a second mine to its Canadian portfolio, also located in Northern Ontario. The combined firm is expected to be free cash flowing at an estimated rate of $700 million for 2019 via its Canadian and Australian assets, with a bolstered cash position of US$630 million.
The transaction is subject to shareholder approval from both Kirkland Lake’s as well as Detour’s shareholders. 66 1/2% of Detour’s shareholders are required to approve of the transaction, while Kirkland Lake requires a majority of votes cast to be in favor of the arrangement. Both shareholder meetings are expected to occur in January, with the anticipated closing of the arrangement slated for the end of January 2020.
Kirkland Lake Gold last traded at $52.38 on the Toronto Stock Exchange.
Information for this briefing was found via Sedar, Detour Gold and Kirkland Lake Gold. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
