TORONTO (miningweekly.com) – Canadian precious metals producers Tahoe Resources and Lake Shore Gold have agreed to combine their businesses, paving the way for the establishment of one Americas-focused miner with a strong diversified production platform, anchored by growing low-cost operations in Peru and Ontario and the Escobal mine, in Guatemala – one of the largest and highest-grade silver mines globally.
Under terms of the definitive agreement that set out a plan of arrangement, Tahoe would exchange 0.1467 of a common share for each of Lake Shore’s issued and outstanding shares, giving the deal an implied equity value (assuming the conversion of in-the-money convertible debentures) equal to C$945-million.
Upon closing, existing Tahoe and Lake Shore Gold shareholders would own about 74% and 26% of the pro forma company, respectively, on a fully diluted in-the-money basis.
The exchange ratio implied a consideration of C$1.71 per Lake Shore common share, based on the Friday closing price of Tahoe common shares on the TSX, and represented a 14.8% premium to the closing price of Lake Shore on the same day, and a 28.6% premium to the closing price on Thursday.
Lake Shore Gold operated the low-cost Timmins West and Bell Creek mines, in Timmins, Ontario. Together with Tahoe's Escobal mine, in Guatemala, and its low-cost La Arena and Shahuindo mines, in Peru, the combined company would be firmly established as a significant Americas-based precious metals producer.
With a diversified suite of low-cost, highly prospective assets and a quality pipeline of new development opportunities, Tahoe would be positioned to sustain and grow its production base. Further, with no net debt, sector-leading operating margins, and moderate capital requirements, the combined company would continue to generate strong free cash flows. As a result, Tahoe expected to continue its dividend of $0.02 a share per month.
The transaction was expected to close, pending shareholder approvals, early in April.
Following the news of the merger, the TSX-listed stock of Lake Shore on Monday jumped nearly 15% to C$1.71 apiece, while that of Tahoe fell nearly 6% to C$10.99 each.