VANCOUVER – Keegan Resources (KGN-T) and PMI Gold (PMV-T) have scrapped plans to merge after it became clear that PMI shareholders were not going to approve the deal.
The two companies, which own neighbouring gold projects in Ghana, announced a merger-of-equals in early December. The deal would have given PMI access to Keegan's well-stocked bank account, enabling the company to finish building its Obotan gold mine without taking on additional debt.
The merged company would then have used cash flow from Obotan to develop Keegan's project, Esaase.
The deal took advantage of a unique synergy – rarely do two companies have neighbouring projects at similar stages and sizes that could be developed together to create a new gold camp. Unfortunately, PMI's shareholders were not impressed with the deal.
"The decision [to terminate the merger] comes as a result of the mutual determination by PMI and Keegan that is it unlikely that PMI's shareholders will approve the transactions contemplated by the arrangement agreement," the companies wrote in a joint release. "The termination of the agreement is not on account of any differences arising between the respective boards about valuation issues or on account of any new facts coming to their attention."
PMI's chairman, Peter Buck, said several big shareholders objected to the transaction because they felt it ascribed too much value to the Keegan assets. The gold at Esaase is slightly lower grade than the gold at Obotan.
These big PMI shareholders were also concerned about some deal details, including the new company's removal from the Australian Securities Exchange and the composition of the new board.
Buck said PMI intends to hold further discussions with Keegan and with its major shareholders to see if there are amended merger terms that would be acceptable to everyone involved. Since the parties both agreed to terminate the deal, neither will pay a termination fee.
The special meeting of PMI shareholders scheduled for Feb. 20 has been cancelled. The special meeting of Keegan shareholders scheduled for Feb. 19 will proceed, but only to consider the approval of a name change to Asanko Gold, which reflects the region of Ghana in which the company operates and which was to have been the name of the new, merged entity.
The mine being built at PMI's Obotan project is expected to produce 200,000 oz. gold annually starting in 2014. Plans for Keegan's Esaase project envision a similar operation, producing 150,000 to 200,000 oz. gold annually starting in 2017. Obotan is home to 44.8 million measured and indicated tonnes grading 2.16 grams gold per tonne for 3.1 million oz. gold. Esaase hosts 68.9 million measured and indicated tonnes averaging 1.73 grams gold for 3.8 million contained gold ounces.
PMI's share price had remained steady near 86¢ for six weeks following news of the merger deal, but from mid-January to mid-February it fell roughly 25% to 63¢. Keegan's share price performed similarly, holding near $3.90 until mid-January before falling 20% to $3.10.
Canadian markets were closed on Feb. 18, when the merger termination was announced.
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