Guyana Goldfields (TSX: GUY; US-OTC: GUYFF) has rebuffed an unsolicited proposal from Gran Colombia Gold (TSX: GCM; US-OTC: TPRFF) for an all share, three-way merger that includes Gold X Mining (TSX-V: GLDX; US-OTC: SSPFX), instead reaffirming its support of an earlier takeover offer by Silvercorp Metals (TSX: SVM; NYSE-AM: SVM) of 60¢ in cash, or 0.1195 of a Silvercorp common share, for each of its shares, subject to a maximum cash consideration of $33.2 million (for an implied overall valuation of about $105 million).
Acknowledging that based on current trading prices Gran Colombia’s proposal represents a premium to the agreed price under its planned Silvercorp transaction, Guyana Goldfields cites what it views as superior terms in Silvercorp’s offer, specifically a cash component to shareholders and access to a stronger treasury to buffer potential funding risks associated with underground development at its Aurora mine in Guyana.
Gran Colombia’s vision to create a larger, South America-focused gold producer with operations in Colombia and Guyana sees it offering 0.142 of a share for each Guyana Goldfields share, which works out to a 90¢ per share valuation (for an implied overall valuation of about $155 million) as of the announcement.
Gran Colombia’s offer includes a US$15 million loan provision to Guyana Goldfields for ongoing operations at its Aurora underground project, matching a term also in Silvercorp’s offer.
Gran Colombia also says it has purchased 8.7 million shares of Guyana Goldfields, representing approximately 5% of the basic shares outstanding, in the lead up to its proposed merger announcement.
Concurrently, Gran Colombia signed a definitive business combination agreement to acquire the remaining 81% of Gold X Mining it does not already own through an offer of 0.5 of a Gran Colombia share for each Gold X share, implying a value of $3.17 per share (an implied valuation of about $100 million for the shares it doesn’t own) as of the proposed deal announcement.
Gran Colombia’s proposed combination is conditional on both acquisitions completing, and if successful, its shareholders will own 60% of the combined company, with Guyana Goldfields and Gold X shareholders owning about 25% and 15%, respectively.
“We’ve got strong support from the Gold X side. We know we have support from Gran Colombia shareholders, and through our discussions over the last couple days, we believe we’ve got support building from the Guyana Goldfields shareholders that this is a superior offer, one where they come into a company where they’ll have 25% of Gran Colombia with four quality assets, and a profile that will take them to 500,000 oz. per year of production as the Gold X-Guyana Goldfields strategy plays out,” Mike Davies, Gran Colombia’s chief financial officer, said in an interview.
The main synergy flagged in Gran Colombia’s proposed deal comes by leveraging planned mining capacity at Gold X Mining’s Toroparu gold development project in western Guyana with the nearby processing infrastructure at Guyana Goldfields’ Aurora mine and mill complex.
“We have been following and evaluating Guyana Goldfields and its Aurora project for some time,” Davies said. “As Gold X secured its land package at the end of 2019, and as we go through the next evaluation of Toroparu prefeasibility studies we’ve been working on with them, one of the most logical things was the synergy of the two projects sitting next door to each other, with a 50 km road joining them up.”
In Gold X Mining’s Toroparu preliminary economic assessment (PEA) tabled last year, initial capital requirements of US$360 million are estimated for site infrastructure and equipment at the planned 11,500-tonne per day open-pit operation.
The PEA modelled average annual production of 187,500 oz. gold over a 24-year mine life and 147,600 oz. gold per year over the first 10 years of production. The project hosts 252.6 million tonnes of measured and indicated resources grading 0.91 gram gold for 7.35 million contained ounces. Additional inferred resources of 128.9 million tonnes at 0.76 gram gold per tonne host a further 3.15 million contained oz. gold.
Toroparu is in the final stages of permitting, with a final review and license approval with the Guyana Geology and Mines Commission.
In its merger evaluation model, Gran Colombia’s CFO said he envisions a significantly reduced capital scenario, with Toroparu production starting roughly six months after the transaction is completed. Capital spending of US$60 million would get the mine ready and upgrade the road to Aurora for processing.
“We will have the benefit of a combination strategy there, that we can source material from Toroparu while we go back in and look at the opportunity to properly exploit the material in the Aurora underground mine,” explained Davies.
Guyana Goldfields’ Aurora mine has experienced operational challenges over the past couple years, as it has fallen short of achieving its targeted open-pit mining rates and saw contained gold in proven and probable reserves at Aurora slashed 43% just over a year ago.
While it has been in the process of transitioning from open pit to underground operations, the company announced in March that its Aurora underground development program was temporarily suspended due to COVID-19 related travel restrictions in and out of Guyana, which also resulted in delays in the next phase of mine development. Guyana Goldfields said they expect ore feed sources at Aurora to be depleted this quarter and anticipated at least a quarter of care and maintenance, with no further open-pit production this year.
The Aurora mine produced 124,200 oz. gold in 2019 at an all-in sustaining costs (AISCs) of US$1,490 per ounce.
Gran Colombia’s produces gold from two operations in Colombia, its wholly owned Segovia underground mine, and through its 74% ownership in Caldas Gold (TSX-V: CGC), which operates the Marmato mine. Last year, Segovia produced 214,241 oz. gold and Marmato 25,750 ounces.
In a research note on Guyana Goldfields, Laurentian Bank mining analyst Barry Allan was positive on Gran Colombia’s proposed deal, saying it provides “a more interesting option to Guyana Goldfields shareholders,” with a higher implied valuation than the Silvercorp offer.
Shares of Guyana Goldfields rallied following Gran Colombia’s announcement, touching a several-month high of 88¢ on the Toronto Stock Exchange. At press time, its shares closed even higher at 92¢, giving it a market capitalization of $161 million based on its 174.5 million common shares outstanding.
On the day of the announcement, Gold X Mining saw its shares move to a seven-month high of $2.95 in Toronto. At press time, the shares closed at $2.80, giving the company a $106 million market capitalization based on 38 million common shares.
Gran Colombia shared dropped on its proposed merger announcement, closing off 13% at $5.52 per share on May 11. At press time, its shares closed at $6.11 giving it a $373 million market capitalization based on its 61 million common shares.
At press time, shares of Silvercorp closed at $5.77 in Toronto trading to give the silver producer a $1 billion market capitalization based on its 173.8 million shares outstanding.