Agnico’s Low-Premium Deal With Kirkland Lake Propels Shares Drop

(Bloomberg) — Shares of Agnico Eagle Mines Ltd. and Kirkland Lake Gold Ltd. fell after the 2 Canadian miners introduced a “merger of equals” that supplied traders a decrease deal premium than different gold mixtures.

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The C$13.4 billion ($10.6 billion) transaction, which creates one of many world’s greatest gold producers, follows offers among the many world’s greatest gold producers which have reshaped the trade in recent times, although it supplied a extra meager premium than different gold producer takeovers.

Traders will obtain 0.7935 of an Agnico share for every Kirkland share held, which represents a premium of about 1% over Kirkland’s 10-day quantity weighted common value in Toronto buying and selling, the businesses mentioned Tuesday in a press release. Compared, Newmont Corp.’s takeover of Goldcorp Inc. in 2019 generated a couple of 17% premium, whereas Kirkland Lake’s buy of Detour Gold Corp. later that 12 months got here in with a couple of 24% premium.

Barrick Gold Corp.’s 2018 takeover of Randgold Assets set the tone of providing low or no premium paid by the customer, whereas mergers of medium or smaller sized gold firms have traditionally fetched greater premiums.

Agnico shares fell 0.7% to C$63.34 at 11:49 a.m. buying and selling in Toronto, whereas Kirkland Lake dropped 7.7% to C$51.17 in its greatest intraday decline since November.

Agnico’s agreed to mix with Kirkland creates one of many high gold producers on the planet, with mines and property in Canada, Australia, Finland and Mexico and anticipated manufacturing of three.4 million ounces of gold this 12 months. The deal might herald extra consolidation within the gold trade the place traders search for offers that unlock worth, add long-term worth and platforms to final for a very long time, Agnico Chief Government Officer Sean Boyd mentioned throughout a convention name with analysts.

“Both companies don’t have to do this,” Boyd mentioned throughout the name. However “strategic rational makes sense and the industrial logic is there,” with a synergy of $2 billion over the subsequent 10 years.

Gold mining reserves and mine lives are shrinking because of years of under-investment in exploration and growth, whereas producers of the valuable steel face rising manufacturing prices and inflation.

The merged miner will use Agnico’s identify and have a board and administration crew drawing from each firms. Tony Makuch, at the moment Kirkland’s CEO, will take the highest job as soon as the deal is accomplished, whereas Boyd will develop into government chair.

Agnico had been shied away from giant offers previously, however this deal is “more about a number of mines and location of mines in terms of manageability, rather than an overall ounce number,” Boyd mentioned. It’s additionally in regards to the exploration potential the place the merged firm will have the ability to develop deposits and lifelong property in “good parts of the world where you can actually do business.”

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