In the latest megadeal sweeping the gold sector, Zijin Mining Group is buying Continental Gold (TSX: CNL; US-OTC: CGOOF) for $1.4 billion in cash.
The Chinese gold miner is on an acquisition spree. In early November, it said it would buy copper-gold assets in Serbia from Freeport McMoRan (NYSE: FCX) for up to US$390 million, and it bought Nevsun Resources for US$1.86 billion just over a year ago.
The Continental purchase will increase Zijin’s gold reserves to more than 2,000 tonnes it said.
“Continental’s 100%-owned Buritica project in Antioquia, Colombia, is one of the largest and highest grade gold projects in the world, and represents a highly complementary addition to Zijin’s international asset portfolio,” Zijin chairman Chen Jinghe stated.
Buritica is expected to pour gold in the first half of 2020, with average annual production of 250,000 oz. gold over 14 years at all-in sustaining costs of US$600 per ounce.
Chen also noted that Continental “holds a sizeable and highly prospective land package in Colombia that combined with the Buritica project provides Zijin with the leading position in an emerging world-class, gold-producing region.”
Under the deal, Zijin will pay $5.50 for each share of Continental — a 29% premium over the Canadian junior’s 20-day, volume-weighted average price.
Newmont Goldcorp (TSX: NGT; NYSE: NEM) has agreed to sell its 19.9% stake in Continental to Zijin for US$260 million.
Directors and senior management holding 1.6% of Continental’s shares have also entered into voting and support agreements with Zijin, one of China’s largest gold producers.
“It was a hard decision for us as a company, but we felt it was the right time to sell before production commences,” Ari Sussman, Continental’s CEO, tells The Northern Miner. “If you look at the list of single-asset producers over the last few years that have gone into commercial production, there are inevitable problems that occur in ramp-up that result in general dilution to shareholders. Therefore, when the board weighed the risk and reward ratio, we did feel it was a good time to bring in a seasoned operator with deep pockets to take over the production and advance it into the production phase.”
Sussman also said the fact that it is an all-cash bid is attractive.
“When you think about the list of companies with the ability to bid cash without going into debt you can count them on one hand,” he says. “So it’s superior to an all-share bid, where historically we have seen the premium quickly disintegrate in a few days after the bid is announced.”
Sussman notes that the financial risk is also low, given that Zijin recently closed an equity financing of over US$1 billion.
In addition, the mining executive pointed to Zijin’s track record at its various operations around the globe.
“My understanding is that it’s the fastest growing large-scale mining company in the world,” he noted. “They are not looking to replace our team but rather they’re buying our team and looking to utilize the success we have had by carrying it forward.”
A shareholder vote on the transaction will be held in January 2020.
Continental discovered Buritica next to a gold-rich mountain in the Andes, 72 km from Medellin, Colombia’s second-largest city, in 2008.
The Zijin transaction is one of many M&A deals this year, after Kirkland Lake Gold’s proposed (TSX: KL; NYSE: KL) $4.9-billion acquisition of Detour Gold (TSX: DGC) in late November and the US$6.5-billion merger of Barrick Gold (TSX: ABX; NYSE: GOLD) and Randgold Resources, and Newmont’s US$10-billion acquisition of Goldcorp.
At press time, Continental’s shares were up 10% — or 49¢ — to $5.36, with 18 million shares traded.
The company has a $1.1-billion market capitalization.