First Mining Finance (TSXV: FF; US-OTC: FFMGF) is buying Gold Canyon Resources (TSXV: GCU) and PC Gold (TSX: PKL) in all-share deals totalling $64 million to create a leading gold exploration company.
Vancouver-based First Mining went public in April and holds 19 projects in Canada, Mexico and the U.S. In these deals, it is offering one share for each Gold Canyon share, and 0.2571 of a share for each PC Gold share. In total, First Mining will issue 160.6 million shares to Gold Canyon and 27.8 million shares to PC Gold. It should have 300 million shares outstanding once both transactions close.
“The total amount paid for these two distressed companies is $64 million, but we are adding over 6 million oz. gold to our inventory. Effectively we are increasing our gold resources by almost 700%, but we are taking a 186% dilution,” Patrick Donnelly, First Mining’s president, said in an email.
The propositions value Gold Canyon at $56.2 million, or 35¢ per share, and PC Gold at $9.7 million, or 9¢ per share, reflecting a 204% and 255% premium over the companies’ 30-day, volume-weighted average price.
In exchange, First Mining will get a hold of Gold Canyon’s 100%-owned Springpole gold project in Ontario’s Red Lake mining district and PC Gold’s past-producing Pickle Crow gold mine, 110 km northeast of the Red Lake mining camp.
A 2013 preliminary economic assessment envisions Springpole as an 11-year mine, producing 217,000 oz. gold a year. The project has 4.4 million oz. gold and 23.8 million oz. silver (from 128.2 million indicated tonnes of 1.07 grams gold and 5.7 grams silver per tonne), and 690,000 oz. gold and 2.7 million oz. silver (from 25.7 million indicated tonnes at 0.83 gram gold and 3.2 grams silver).
According to a 2011 resource statement, the Pickle Crow mine — where operations closed in 1965 due to low gold prices — contains 1.26 million oz. gold from 10.2 million inferred tonnes averaging 3.9 grams gold.
First Mining is paying $11 per oz. for Springpole and $8 per oz. gold for Pickle Crow, Donnelly says.
As part of the Gold Canyon agreement, Gold Canyon will spin out its early non-gold exploration properties and other assets — plus $500,000 in cash — into New Gold Canyon. Its shareholders will receive 0.03333 of a New Gold Canyon share for each Gold Canyon share held.
Gold Canyon’s president and CEO Akiko Levinson will run the new exploration vehicle, which will keep some of Gold Canyon’s management and directors.
First Mining and Gold Canyon have agreed to pay a $3.9-million termination fee if either party backs out, while PC Gold will have to pay $500,000 to First Mining if it calls off its agreement.
Gold Canyon and PC Gold’s shareholders are set to vote on the transactions in November. If both deals close, former Gold Canyon and PC Gold shareholders will hold 55.4% and 9.6% of First Mining.
First Mining announced both transactions on Sept. 1 — less than two months after snatching Coastal Gold and its Hope Brook gold project in Newfoundland in an $11-million, all-stock deal.
On the latest acquisition news, First Mining shares fell 20% to 28¢, before erasing more than half the loss the next day to close Sept. 2 at 31.5¢.
Donnelly expects the company’s shares will rerate once the deals close, noting the earlier drop was likely due to traders shorting the stock, and buying Gold Canyon and PC Gold shares.
“We are a long-term story and we are being aggressive with our acquisition strategy, but in the end, I expect that we will deliver positive returns to our shareholders,” he says. The executive adds the firm will continue its all-share offer strategy and is looking for more acquisitions.
At press time Gold Canyon rose 78% to close at 20.5¢ per share, and PC Gold shares climbed 83% to 5.5¢.