Equinox Gold (TSX: EQX; NYSE-AM: EQX) is buying fellow miner Premier Gold Mines (TSX: PG), which will spin out its Nevada assets in a new U.S.-focused gold miner to be called i-80 Gold Corp.
The all-stock deal valued at $612 million (US$480 million) hands Equinox Gold Premier’s interest in the Hardrock project in Ontario, the Mercedes Mine in Mexico and the Hasaga and Rahill-Bonanza properties in Red Lake, Ont.
Premier’s South-Arturo and McCoy-Cove properties will be held by i-80 Gold, which will also complete Premier’s previously announced acquisition of the Getchell project, all in Nevada.
Equinox said that it would undertake a $75 million equity financing fully underwritten by its chairman, Ross Beaty, to help fund the deal.
The proposal will see Premier shareholders receive 0.1967 of an Equinox Gold share and 0.4 of a share of i-80 Gold for each Premier share held. Equinox shares closed at $13.10 on the Toronto Stock Exchange on Dec. 15, while Premier shares closed at $2.52.
Premier investors will own 16% of Equinox Gold once the deal is complete, as well as 70% of the shares of i-80 Gold. The spin-off company will be led by Premier’s current boss, Ewan Downie.
Equinox Gold will own the remaining 30% of i-80 Gold.
“This transaction is exactly the kind of accretive Americas-focused growth we promised shareholders when we started Equinox Gold at the beginning of 2018,” Beaty said in a news release announcing the deal.
The friendly acquisition is subject to court approval and Premier shareholders’ approval at a meeting scheduled for February.
The deal boosts Equinox Gold in the gold market, building on the company’s acquisition of Leagold Mining Corporation. The parties completed their merger earlier this year, creating one of the world’s top gold producing companies operating entirely in the Americas.
The Vancouver-based company moved from developer to producer status in July 2020, when it kicked off commercial production at its second gold mine, Aurizona, in northeastern Brazil.
Equinox is also advancing construction at the previously-mined Castle Mountain, located about 320 km north of its Mesquite operation, which reached commercial production in November.
Gold producers are benefiting from historic-highs metal prices as unprecedented stimulus measures around the world were unleashed on financial markets.
In a research note, Kerry Smith of Haywood Securities noted that the at-market acquisition of Premier Gold “brings near-term growth from Mercedes but more importantly adds a permitted, large and long-life asset in Ontario that can be production by late 2023. Once the acquisition is complete, Equinox will be well on its way to production of over 1.2 million by 2024, with 15.2 million ounces of reserves and a further 13.0 million ounces of M&I resources in the portfolio post-closing.”
“Equinox has moved from a non-producer in mid-2018 to a company with eight operating gold mines and a pipeline of growth projects,” he added. “However, despite the company’s progress Equinox continues to trade at a discount to its peers, which we believe should close over time but currently presents a buying opportunity for investors.”
Smith has a buy rating on the company and a target price of $24.50 per share. Over the last year the company has traded in a range of $6.60 and $17.99 per share and at presstime was trading at $13.50 per share. It has about 242 million common shares outstanding for a market cap of about $3.24 billion.
Andrew Mikitchook, an analyst at BMO Capital Markets who covers Premier Gold Mines, said the transaction “creates the potential to surface value for PRremier Gold shareholders for its broad and overlooked portfolio.”
“Premier Gold shareholders still get exposure to Mercedes/Hardrock and Red Lake through Equinox Gold shares to be received, and the Nevada assets being spun out into I-80 Gold will show the valuation of South Arturo, McCoy/Cove and Getchell.”