Gold M&A: Equinox, Orla combine as $18.5B miner

Equinox Gold (TSX: EQX; NYSE: EQX) said on Wednesday it would acquire Orla Mining (TSX: OLA; NYSE: ORLA) in a deal valued at about US$18.5 billion (C$25.4 billion), creating a North America-focused gold producer expected to generate 1.1 million oz. annually.

Existing Equinox shareholders will own about two-thirds of the combined company, while Orla shareholders will hold the rest, the companies said Wednesday. The merged miner, behind only Agnico Eagle Mines (TSX, NYSE: AEM) in Canada for production, will also operate mines in the U.S., Mexico and Nicaragua.

The enlarged company’s six assets include Orla’s Musselwhite mine in Ontario and Equinox’s Greenstone and Valentine mines in Ontario and Newfoundland and Labrador. The transaction is expected to close in the third quarter.

“The strategic fit is excellent and can leverage the geographic focus in Canada and the U.S.,” Haywood Securities mining analyst Jamie Spratt said in a note. “And there appears to be a logical growth plus development pipeline sequencing over the next three to four years.” 

The deal continues a wave of consolidation among gold miners seeking scale, lower operating risk and stronger balance sheets as bullion prices remain near record highs.

Scale, growth

Equinox CEO Darren Hall highlighted the combination’s strong project portfolio for growth and its current long-life assets. 

“By combining our operating teams, financial strength, and complementary asset bases, we are creating a differentiated North American gold producer with the scale, growth profile, and asset quality to drive a meaningful re-rate and deliver long-term value for shareholders,” Hall said in a statement.

Hall will remain chief executive of the combined company, while Orla CEO Jason Simpson will become president. The companies said the merged entity could increase annual gold production by about 70% to 1.9 million ounces through its development pipeline, positioning it among the larger gold producers focused on stable mining jurisdictions in North America. 

Market reaction

Equinox shares closed 1.9% weaker on Wednesday in Toronto at C$19.90 apiece, valuing the company at C$15.6 billion as most stocks aside from tech fell on higher U.S. inflation. Orla shares gained 0.8% to C$19.93 for a market capitalization of C$6.85 billion.

“It may take time for the market to digest the deal, but we expect that the business should attract investor capital with the ingredients to garner a premium North American multiple with successful operational execution,” Haywood’s Spratt said. 

Orla’s Camino Rojo in Mexico produced 115,000 oz. gold last year and has potential to hit 215,000 oz. a year with underground development, Spratt noted. The underground Musselwhite has averaged 235,000 oz. a year and has 1.5 million oz. in reserves.  

The South Railroad open pit heap leach gold project in Nevada should reach a federal record of decision within a few months allowing the final push for local permits, the analyst said. First production is targeted for fourth-quarter next year. 

“Orla was built on a simple idea: Acquire the right assets, develop them with discipline, and operate them well,” CEO Simpson said. “Together, we have the production base, the balance sheet, and the team to compete at a level otherwise unattainable by either company on its own.”