Yamana to acquire Monarch Gold in $152M deal

Monarques Gold’s past-producing Wasamac gold project in Quebec, as seen in 1984. Credit: Monarques Gold.Monarch Gold’s past-producing Wasamac gold project in Quebec, as seen in 1984. Credit: Monarques Gold.

Yamana Gold (TSX: YRI; NYSE: AUY; LSE: AUY) is expanding its footprint in the precious metals-rich Abitibi region of Quebec by acquiring all shares in smaller rival Monarch Gold (TSX: MQR) that it does not already own for $152 million (US$114 million).

The cash and share deal gives Yamana the Wasamac property, which is 100 km from its 50%-owned Canadian Malartic mine, as well as the Camflo mill, also in Quebec.

Monarch said it would first spin-off its other mineral properties and certain other assets and liabilities into a new company.

Each outstanding common share of Monarch will then be exchanged for 19.2¢ in cash, 0.0376 of a Yamana share and 20¢ of a share in the new miner.

Once the transaction is complete, Monarch’s shareholders will own 1.3% of Yamana and 100% of the new miner, and Yamana will own 100% of Monarch.

The new company will hold Monarch’s Beaufor mine, McKenzie Break property, Croinor gold property, Swanson property and the Beacon gold asset.

The Wasamac gold project is 15 km west of Rouyn-Noranda in the Abitibi region of Quebec, while the Camflo property is 15 km northwest of Val-d’Or.

Yamana said the asset holds the potential to be an underground mine achieving the same scale, grade, production and costs as its Jacobina mine in Brazil and its Canadian Malartic mine.

Wasamac has existing proven and probable mineral reserves of 1.8 million oz. gold. The property includes three mining concessions and 30 mining claims covering a total area of 17.4 square kilometres.

According to a December 2018 feasibility study, Wasamac will be a 6,000-tonne-per-day operation. The mine is expected to churn out 142,000 oz. gold per year for 11 years, at an all-in sustaining costs of US$630 per ounce.

Initial capital investment has been estimated at $464 million.

Progressive takeover

Yamana Gold has had its eyes on Monarch for some time. In June, the senior gold producer bought Monarch’s Fayolle gold property in a cash and share deal valued at US$11.5 million.

It also invested $4.2 million in Monarch’s $5.4 million private placement.

Monarch filed a project notice with Quebec’s Ministry of the Environment and the Fight Against Climate Change in November 2019. That is the first step in the mining permit application process, which generally takes 18 to 24 months, which means Yamana could have a new producing mine early next year.

Farooq Hamed of Raymond James was positive on the deal. “Overall, we view this acquisition as a good tuck-in for Yamana, as it adds nearly 2 million oz. of reserves in Quebec with a project that has undergone a feasibility level review at a total cost to Yamana of ~2% of its market capitalization with share dilution of ~1%,” he commented in a research note.

BMO analyst Jackie Przybylowski said Yamana’s latest move may end up with the company selling the Wasamac gold project to its Malartic joint-venture partner Agnico Eagle Mines (TSX: AEM; NYSE: AEM).

Przybylowski noted it could also lead to further acquisition activity in the Abitibi region.

If Yamana itself, Agnico Eagle, or Eldorado were looking for further tuck-in acquisitions in the region, the analyst believes there are a few companies that would fit that bill. Those include Probe Metals (TSX: PRB; US-OTC: PROBF), Radisson Mining Resources (TSXV: RDS; US-OTC: RMRDF), Amex Exploration (TSXV: AMX; US-OTC: AMXEF) and O3 Mining (TSXV: OIII).

Larger companies that could also serve to boost production and the longer-term pipeline in the Abitibi include Wesdome Gold Mines (TSX: WDO), Wallbridge Mining (TSX: WM) and Osisko Mining (TSX: OSK), she wrote in a research note.

— This article first appeared in MINING.com, part of Glacier Resource Innovation Group.

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