Haile, South Carolina.
Photo by: Romarco Minerals
TORONTO (miningweekly.com) – Triple-listed OceanaGold has agreed to buy Canadian project developer Romarco Gold in an all-scrip deal valued at about C$856-million, which upon closing, would create the lowest-cost global gold producer.
Romarco's main asset was the Haile gold mine, in South Carolina, which was a high-grade openpit project that was currently in construction and represented one of the best gold development assets worldwide.
The business combination was expected to create the lowest-cost gold producer in the market, boosted by a long reserve life, a portfolio of high-quality assets that generated significant free cash flow and a solid pipeline of organic growth opportunities.
Haile was expected to produce about 540 000 oz/y from 2017 at an all-in sustaining cost (AISC) of less than $600/oz. During the mine’s first year of operations, the AISC was expected to be as low at $414/oz of gold.
“The combination of the sector low-cost profile with significant free cash-flow generation, diversified production and a pipeline of organic growth opportunities forms the lowest-cost gold producer globally," OceanaGold MD and CEO Mick Wilkes advised.
The combined entity would operate from four operating platforms in three countries, with about 75% of gold output expected to come from New Zealand and the US in 2017.
The integrated entity would have greater financial flexibility through the combined cash position, OceanaGold's strong free cash-flow generation from its existing operations and access to low-cost credit facilities. As a result, the cost of capital for the Haile development was expected to be meaningfully reduced, while maintaining a leverage profile.
Melbourne, Australia-based OceanaGold had signed a definitive agreement with Romarco, under which it would acquire all of the issued and outstanding Romarco common shares in a stock-only transaction to be completed by way of a statutory plan of arrangement under the Business Corporations Act (British Columbia).
Under the terms of the agreement, Romarco shareholders would receive 0.241 of an OceanaGold common share for each Romarco common share held. This represented the equivalent of C$0.68 a Romarco share and a premium of 72.7% based on Wednesday’s closing prices of OceanaGold and Romarco on the TSX and 71.8% based on the 30-day volume-weighted average price of the OceanaGold shares and the Romarco shares on the TSX.
Further, each option to buy a Romarco share would be exchanged for a replacement option to buy OceanaGold shares, adjusted based upon the exchange ratio.
After closing, existing OceanaGold and Romarco shareholders would own about 51% and 49% of the combined company, respectively.
OceanaGold on Thursday also reported results for the second quarter ended June 30, posting a net loss of $1-million, owing to lower earnings before interest, taxes, depreciation and amortisation, increased depreciation and amortisation costs associated with higher amortisation of prestripping costs at Didipio, in the Philippines, and Reefton, on New Zealand's South Island, and a noncash, unrealised loss of $15.4-million in undesignated hedges.
Despite a decrease in the average gold price received from the previous quarter, the company generated $17.3-million in free cash flow in the second quarter and $36.7-million for the first half of the year. In the second quarter, OceanaGold invested $13.4-million in Gold Standard Ventures, by taking a 14.9% stake in the company through a private placement.
Romarco’s TSX-listed stock shot up 35% early on Thursday morning to C$0.54 apiece, while OceanaGold’s stock lost more than 22% on the same exchange, falling to C$2.20 a share after the morning bell rang.