The price of gold is rising. Money is flowing into the gold sector.
Together, this is spawning a spike in M&A activity in the gold mining industry. On Monday,
Gran Colombia Gold (CAN:GCM / US:TPRFF)
announced a proposed merger with
GoldX Mining (CAN:GLDX / US:SSPXF).
Along with this, Gran Colombia is announcing the proposed acquisition of
Guyana Goldfields (CAN:GUY). Together, it comprises an intended three-way merger that would result in Latin America’s newest intermediate gold producer.
Gran Colombia’s shareholders would hold ~60% of the new combined entity. Guyana Goldfields shareholders would have a ~25% stake. And Gold X shareholders would own the remaining ~15%.
There is a big catch here.
The merger of Gran Colombia with Gold X is conditional upon Gran Colombia’s acquisition of Guyana Goldfields. But Guyana already has
a definitive agreement in place to be acquired by
Silvercorp Metals (US:SVM / CAN:SVM).
Gran Colombia’s offer is unsolicited.
Guyana has
issued its own release stating that it “is reviewing the Gran Colombia Proposal”. The release was unclear as to Guyana’s course of action in the event that Guyana’s Board deems the Gran Columbia offer to be a “Superior Proposal”.
The agreement between Silvercorp and Guyana stipulates a CAD$3.65 million termination fee if Guyana was to choose to walk away. This may also include additional reimbursement of expenses for Silvercorp related to the transaction.
Of further interest is that the Silvercorp/Guyana definitive agreement contains a “right to match period” in favor of Silvercorp. This means that Silvercorp could also come back with its own counteroffer.
Silvercorp is a profitable, efficient silver producer with its silver mining operations centered in China. If the Silvercorp-Guyana deal goes through, it will result in Silvercorp becoming a diversified precious metals producer in terms of both its metals production and its operational profile.
Silvercorp is China’s leading silver producer, having mined 69.7 million ounces of silver over the past 14 years. Adding Guyana’s ~147,000 ounces of gold production per year (via its Aurora Mine in Guyana) would make Silvercorp a much more intriguing company in the eyes of many precious metals investors.
If Gran Colombia prevails with its proposed three-way merger, another very interesting entity is created.
Gran Colombia itself is a 200,000+ ounce per year gold producer. The vast majority of production comes from its high-grade Segovia Mine in Colombia.
Last year, head grades at Segovia exceeded 16 g/t gold, making it one of the highest grade gold mines in the world.
Gran Colombia also boasts its huge Marmato Project, with a 7+ million ounce gold resource and limited current gold production. Marmato has officially been spun out into a separate entity,
Caldas Gold (CAN:CGC). However, Gran Colombia retains roughly a 75% ownership interest in Caldas – and thus Marmato.
GoldX Mining boasts its own 7+ million ounce gold resource, its Toroparu Project based in Guyana.
Along with regional proximity, the three companies share something else in common: cheap valuations.
Gran Colombia has a current market cap of CAD$364 million. According to
recent data from Thomson Reuters, it is trading at an incredible P/E multiple of only 3.3.
Guyana Goldfields has a current market cap of CAD$148 million – and that is even after surging higher on the agreement with Silvercorp.
GoldX Mining has a market cap of just over CAD $100 million. Its Toroparu gold resource is currently valued at only US$11 per ounce (source:
GoldX Mining).
A combined entity would have annual gold production of nearly 400,000 ounces per year. And it would boast combined gold resources of ~20 million ounces.
Yet the combined market caps of the three companies is currently only just over CAD$500 million, or roughly US$350 million.
In comparison, West Africa gold producer
Teranga Gold Corp (CAN:TGZ / US:TGCDF) has a current market cap of approximately US$1.2 billion. It has total annual gold production below 400,000 ounces – similar to Gran Colombia + Guyana.
But Teranga has less than half the total gold resources as would the proposed three-way merger, despite trading at more than three times the market cap.
Clearly, there is the potential for the proposed merger from Gran Colombia to be highly accretive for shareholders in all three companies.
Guyana Goldfields is about to be acquired. The question is: by who?
The answer could be both very interesting and profitable for gold mining investors.
