Market Movers: Contact Gold Jumps On Acquisition News While Orla Mining Falls
Contact Gold Corp (TSXV: C) shareholders appear to have been rejoicing today, following the announcement that the company would be acquired at a premium by Orla Mining (TSX: OLA), with the purchase of Contact enabling Orla to grab a bigger position in Nevada on the cheap.
Orla will be acquiring Contact for roughly $0.03 per share in an all-stock deal, with Contact shareholders to receive 0.0063 of a share of Orla for each share held. The acquisition as a whole will amount to US$8.1 million, a massive 77% premium compared to the twenty day volume weighted average price of both equities.
Contact shareholders appeared fairly amenable to the transaction, with the equity jumping by over 66% to last trade at $0.025 with 20.87 million shares trading hands today. While large in terms of shares traded, it amounts to roughly $544,000 worth of shares moving around. In Orla terms, it translates to roughly 131,481 Orla shares trading hands, based on the pre-set conversion rate.
Despite the volume, and the premium paid, the equity didn’t hit any new highs (nor should it have, based on exchange rates), with Contact last trading at $0.03 this past June. From a chart perspective, it looks like trapped capital.
And while Contact shareholders may have been busy celebrating, Orla shareholders had a different response to the news. Orla sold off by roughly 8%, down by $0.39 at the time of writing on 1.5 million shares. In dollar terms, that sell off saw $6.5 million in shares traded – a substantial figure when compared to that of Contact.
Orla is justifying the purchase of Contact on the premise that it will consolidate landholdings adjacent to Orla’s South Railroad project, which has a current resource of 1.6 million gold ounces proven and probable, plus a further 1.8 million ounces of measured and indicated gold ounces, and 0.7 million inferred ounces.
A feasibility study conducted in 2022 estimated a mine life of 8 years for the project, which would produce 124,000 ounces of gold a year at an all in sustaining cost of $1,021 an ounce. The project reported a net present value with a 5% discount of US$315 million on an after-tax basis, and an IRR of 44% with a 1.9 year payback period.
Contact’s Pony Creek project, which is adjacent to South Railroad, currently boasts a resource estimate of 433,000 ounces of inferred gold within a pit-constrained model, which was released in 2022. The estimate comes from three separate zones at the project, with average grade coming in at 0.52 g/t.
“This transaction strengthens our land position in Nevada along the Carlin trend. Contact’s Pony Creek property is a valuable complement to our South Railroad Project, one our key growth opportunities. We look forward to making the necessary investments to unlock the combined potential of this now larger, contiguous and highly prospective land package,” commented Jason Simpson, CEO of Orla Mining, on the acquisition.
Contact’s other project, Green Springs, is also found in Nevada. That project was optioned out in December 2022 to Centerra Gold, who has agreed to earn up to a 70% interest in the project by spending US$10 million over a period of four years in exploration on the project, while making cash payments of US$1 million over the earn in period. Contact remains the project manager on the project, with Centerra footing the bill for exploration related costs.
The purchase will see the extension of the South Railroad project to the south, enabling Orla to own a larger piece of the Railroad Mining District. It’s also expected to enable more comprehensive exploration of both Pony Creek and Green Springs, assets which Orla says “have been historically underfunded and are underexplored.”
The transaction is expected to close in the second quarter of 2024, subject to approval by Contact’s shareholders.
Information for this briefing was found via Sedar and the sources mentioned. 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.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.
