Gammon, Mexgold to make mid-tier Mexican miner

Vancouver — The proposed takeover of Mexgold Resources (MGR-V) by Gammon Lake Resources (GAM-T, GRS-X) would create a mid-tier Mexican-focused mining company with annual production of 235,600 oz. gold and 10.5 million oz. silver with a fully diluted market capitalization of about $1.6 billion.

Gammon Lake’s core asset is the newly developed Ocampo gold-silver mine in Chihuahua state, a combined open-pit and underground operation expected to produce 170,000 oz. gold and 6.2 million oz. silver annually at full production. Mexgold operates the El Cubo mine in Guanajuato, which produced 10,643 oz. gold and 497,783 oz. silver in the first quarter of this year.

The directors of both companies have unanimously approved the proposed transaction, which calls for each Mexgold shareholder (other than Gammon Lake, which already owns 20% of the company) to receive 0.47 of a Gammon Lake common share in exchange for each Mexgold common share. The share-exchange ratio has an implied value of $7.49 per share, or a 21% premium, to Mexgold shareholders based on the weighted average closing prices of the companies over a 20-day period.

In a statement, Gammon Lake president Fred George described the business combination as “a natural progression for two companies with similar high-quality assets in Mexico, and overlapping management and shareholders.”

The new Gammon Lake would have expanded reserves and resources, average cash costs of production well below US$200 per gold-equivalent oz. (based on 60 grams of silver being equal to 1 gram gold), and a cash position of about $36 million, along with an expanded portfolio of exploration properties in a nation with “low geopolitical risk.”

The combined entity would have measured and indicated resources containing more than 3.5 million oz. gold and 165 million oz. silver, along with considerable additional inferred resources. The measured and indicated resources include proven and probable reserves of more than 2.8 million oz. gold and 137 million oz. silver.

The merger transaction is still subject to various conditions, including the execution of a definitive agreement, the approval of at least 66.23% of all Mexgold shareholders, and various regulatory and court approvals.

Gammon Lake recently closed a US$40-million loan to move the Ocampo project into full production. The open-pit, heap-leach phase of the mine has almost reached full capacity of 13,000 tonnes per day. The underground mine and cyanide leach plant were designed with a capacity of 1,500 tonnes per day.

Mexgold, meanwhile, is carrying out an exploration and underground development program at El Cubo (which includes the adjacent past-producing Las Torres mine) with a view to expanding annual gold-equivalent production to more than 100,000 oz. The company is also advancing its Guadalupe gold-silver project, a historic past-producing property also in Chihuahua state.