Eldorado Gold (TSX: ELD; NYSE:EGO) is buying QMX Gold Corp. (TSXV: QMX) by acquiring all the shares it doesn’t already own in the Quebec-focused explorer, in a deal worth $132 million (US$105 million).
The friendly acquisition will see Eldorado, which currently owns about 68.13 million shares of QMX or roughly 17% of the junior, paying each QMX shareholder 7.5¢ in cash and 0.02 of an Eldorado common share.
The deal represents a 39.5% premium to the closing price of QMX shares on the TSX Venture Exchange on January 20.
Once the transaction is closed, QMX shareholders will own about 2.8% of the issued and outstanding common shares of Eldorado.
George Burns, Eldorado’s president and CEO, said the deal will expand the company’s footprint and landholdings in the Abitibi Greenstone Belt by about 550%.
“The transaction is consistent with our strategy of pursuing growth at Lamaque in Quebec, a high-quality jurisdiction,” Burns said in a news release . “QMX’s highly prospective land package is ideally located immediately adjacent to our current Lamaque operation and associated exploration projects in the heart of the Val d’Or gold district.”
The Vancouver-based gold major also noted that the acquisition of QMX adds a pipeline of additional organic opportunities close to its Lamaque gold mine, which can be exploited by leveraging existing infrastructure.
The companies said that they are working towards closing the transaction in late March or early April.
Eldorado is in the midst of building a US$24 million tunnel at Lamaque, its only Canadian operation, which will allow the company to grow production and reduce energy use.
The miner, which kicked off commercial production at Lamaque in 2019, has said the fully permitted decline project will connect the Sigma mill and the 405-metre level of the Triangle mine.
Expected to be finished in the first half of 2022, the tunnel will eliminate re-handling and transport of the ore (a roughly 26-km round trip) from the Triangle mine to the mill, reducing carbon emissions, costs and removing haulage traffic from public roads. It is also expected to cut energy requirements for mine ventilation.
Kerry Smith, an analyst who covers Eldorado Gold for Haywood Securities, has a buy rating on the stock and price target of $24 per share. In early afternoon trading in Toronto, Eldorado was down $0.50 to $14.27 per share within a 52-week trading range of $6.29 and $18.90 per share.
“The friendly acquisition of QMX will add 200 sq. km to Eldorado’s land package in the Abitibi Greenstone belt, located immediately east of Eldorado’s producing Lamaque operation,” he commented in a research note to clients. “The property is a strategic land package for Lamaque, and hosts a modest resource at Bonnefond along with many under-explored gold showings. We expect Eldorado’s focus will be to continue drilling this extensive package including laterally and at depth at Bonnefond.”
Smith noted that Bonnefond is about 20 km from Eldorado’s Sigma mill, which has capacity to expand “with modest capital” from its current 2,000 tonnes per day to 5,000 tonnes per day.
Bonnefond has indicated resources of 7.42 million tonnes grading 1.67 grams gold per tonne for 397,100 oz. contained gold and inferred resources of 3.34 million tonnes grading 2.71 grams gold per tonne for 290,800 ounces.
“Bonnefond is lower-grade than Lamaque, and we think the primary focus will be to continue exploration to grow the Bonnefond resource and evaluate other targets,” Smith wrote.
“QMX reported an updated resource estimate for Bonnefond on December 2, 2020 that grew the indicated resource by over 50%,” he added, “and drilling has only been completed to a depth of ~200 metres.”
Outside Canada, Eldorado has mining, development and exploration operations in Greece, Turkey, Romania and Brazil, but has increased its focus on the local market in recent years.