NEW YORK – Kirkland Lake Gold CEO Tony Makuch was quick to assuage investors that the planned C$4.9-billion acquisition of Detour Gold Corp. won’t boost the company’s cost after shares tumbled.

Shares of Canada’s Kirkland Lake slumped 16%, poised for the biggest decline since July 2015, after announcing an all-share deal to buy Detour Gold, which operates the Detour Lake mine in Ontario. Detour Lake is expected to produce for more than 20 years and can generate 600,000 ounces a year.

Gold mining acquisitions have surged since 2018 after Barrick Gold’s takeover of Randgold Resources, and Newmont Mining’s acquisition of Goldcorp. Consolidating the projects after the mergers hasn’t been easy for Newmont, which inherited a company saddled by growing pains as it integrates Goldcorp assets.

In the case of Kirkland’s deal, the company will take on Detour Lake, whose cost is double that of the acquiring miner.

“There’s significant benefit in terms of maintaining or reducing costs from current levels,” Makuch said in a telephone interview. “This is definitely a long-life asset that has potential to grow production and continue to be a long-life asset.”

Kirkland has managed to cut its all-in sustaining cost or the cost to keep its mines in business by almost half to $562/oz in the third quarter, from three years earlier. That compares with a 15% gain in Detour’s cost of $1,198.

Kirkland’s stock price has surged in the three years through Friday, climbing eight-fold, as profits soared. That has put the company in a strong position to expand. The Detour Lake gold mine is about the same size as Kirkland’s biggest project, the Fosterville mine in Australia.

The acquisition “will increase Kirkland Lake’s overall cost profile", Fahad Tariq, an analyst at Credit Suisse Group AG said in a note before trading started Monday. “It also raises concerns about potentially weaker exploration updates coming at Fosterville.”

Detour shareholders will receive 0.4343 share of Kirkland, according to the statement. After the deal is completed, existing Kirkland shareholders will own 73% of the new company, with Detour owners holding the rest. The agreement values Detour at C$27.50 a share, a 24% premium to the closing price on Friday, Kirkland said in a statement.

SLIPPING VALUE

After Kirkland shares plunged Monday, the value of the offer has fallen to C$23. Detour shares advanced 3.3% to C$22.94 in Toronto.

Detour shares have doubled this year, helped by a rally in gold prices. Paulson & Co. led an overthrow of the board in 2018 after a bitter proxy battle, in which he called for the company to put itself up for sale.

The new entity would have gold production of about 1.5-million ounces in 2019 and free cash flow of $700-million, Kirkland said.