David Palmer and his team are embarking on an adventure. His company Probe Metals (TSXV: PRB) is proposing a $22.8-million, all-share combination with Adventure Gold (TSXV: AGE) to create a gold exploration and development firm with properties in Quebec and Ontario.
Palmer previously led Probe Mines and the advancement of the Borden Lake gold deposit near Chapleau, Ont. The project, one of the best recent gold discoveries in the province, spurred Goldcorp (TSX: G; NYSE: GG) to acquire Probe for $526 million last March, and The Northern Miner to name Palmer our Mining Person of the Year for 2014.
As part of the deal, Probe spun out its secondary exploration assets in northern Ontario into Probe Metals and kicked off an intensive project-generation program.
“What we wanted to do was use our strengths and the success we had with Probe Mines and apply that to Probe Metals, and hopefully give our shareholders … another ‘bite of the apple,’ in terms of adding more value,” Palmer says in an interview.
He and his team spent almost a year assessing more than 400 projects, with Palmer admitting that finding projects that fit Probe’s strategy was at first harder than he expected.
That was until they came across Adventure and its “exciting” portfolio in late 2015. The 20-project portfolio contains exploration prospects in some of Canada’s most prolific gold camps, including Val-d’Or, West Timmins, Casa Berardi and Detour Quebec.
Adventure’s flagship asset is the Val-d’Or East project, where a 2013 resource estimate pegged inferred resources at 770,000 oz. grading 2.6 grams gold per tonne.
Although Adventure was “a bit under the radar,” its portfolio met Probe’s requirements of containing an advanced exploration project that it could push ahead with its technical expertise and cash balance (sitting at $18.3 million at the end of 2015). It also contained several early stage projects that Probe could concurrently work on.
Val-d’Or East is “interesting” because it has many targets on the 90 sq. km property that Probe could explore while delineating and expanding the existing resource, Palmer says. He estimates it would take two years to figure out the project’s development scenario.
Adventure’s other assets of note include the Detour Quebec project on the Detour Gold trend between Detour Gold’s (TSX: DGC) flagship mine and Balmoral Resources’ (TSX: BAR) Fenelon gold deposit, and the Casa Cameron gold project near Hecla Mining’s (NYSE: HL) Casa-Berardi gold mine. Each project contains nine properties.
Palmer, a veteran exploration geologist, says the Casa Cameron project has “a lot of potential.”
He adds that “I have something I really like when I plan the exploration program after just reading a property overview,” but cautions there is no guarantee his team will make a discovery on any of the early-stage projects.
Adventure’s CEO Marco Gagnon describes the proposed business combination as “logical” and a way for his company to drive its projects forward.
Under the transaction, Adventure shareholders will receive 0.39 of a Probe share for each share held. The deal values Adventure at $22.8 million, or 28.5¢ per share, reflecting a 23% premium to both companies’ 20-day, volume-weighted average price as at April 6.
“We believe the merger is a win-win for both shareholder groups and is set to create growth opportunities on several fronts,” writes PearTree Securities analyst Eric Lemieux, who covers Adventure.
Goldcorp, which owns 17.7% of Probe, announced a $2.9-million financing, where it would buy 4.4 million Probe shares for 66¢ apiece. While the financing is conditional on the Adventure deal closing, it would provide Goldcorp a 15% interest in the merged company and the right to participate in any financings to acquire up to 19.9% of the new Probe.
Management of the combined firm will include Probe’s current team, with Palmer as the president and CEO, and Jamie Sokalsky, Barrick Gold’s (TSX: ABX; NYSE: ABX) former CEO, as chairperson. Adventure’s Gagnon will become executive vice-president, and one Adventure director will join the combined board.
“It took a little bit longer than we thought, but it was worth the wait to get really good projects that we can add value to,” Palmer says. “At the end of the day, we are excited to be back to our real job.”
The merger transaction should close in June, after shareholder and regulatory approval.
The new Probe will have a $22-million treasury and 66.2 million shares outstanding.