Yamana aims to expand Canadian footprint with $17.5M bid for Mega Precious

VANCOUVER — Producer Yamana Gold (TSX: YRI; NYSE: AUY) is hoping to step up its presence in Canada with a $17.5-million cash and share agreement for explorer Mega Precious Metals (TSXV: MGP) and its 338 sq. km Monument Bay gold-tungsten project, 340 km southeast of Thompson, Man. The deal also gives Yamana a foothold in Ontario’s prolific Red Lake gold district in the form of Mega’s North Madsen property.

Yamana would acquire Mega under a plan of arrangement for consideration of 0.02092 of a Yamana share and cash of 0.1¢ per Mega share, which equates to 10¢ per Mega share based on Yamana’s April 23 closing price. In the event of a superior proposal, Yamana has a five-business-day right to match. 

The junior had traded near a 52-week low of 4.5¢ per share at the time of the bid, and was sitting on $2 million in cash.

“The acquisition of [Mega] advances Yamana’s strategy to expand our presence in Canada, which we established last year with the joint acquisition of Canadian Malartic and a portfolio of exploration properties in Quebec and Ontario,” William Wulftange, Yamana’s senior vice-president of exploration, said in the release.

Current measured and indicated resources at Monument Bay total 47 million tonnes grading 1.43 grams gold for 2.2 million contained oz. The deposit also holds 248,000 tonnes of WO₃.

The resource sits predominately along the Twin Lakes shear zone, with mineralization occurring in a pull-apart basin consisting of faulted-folded felsic volcanics, intruded by quartz-feldspar porphyry. Mega recently announced results of a scout drill program along the nearby South Limb shear zone that show Monument Bay could hold more deposits along regional structures.

Meanwhile, North Madsen is a near-surface quartz tourmaline and shear-hosted Archean gold deposit in the heart of Red Lake. The site is contiguous with the historic Hasaga and Howey gold mines, which produced 640,000 oz. gold. Current measured and indicated resources total 23 million tonnes of 1.2 grams gold for 889,000 contained oz. Inferred resources include 10 million tonnes of 1.18 grams gold for 384,000 contained oz.

Mega president and CEO Glen Kuntz told The Northern Miner in late April that the company was exploring the option of vending North Madsen to increase its cash position so that it could focus on Monument Bay.

“We’ve been trying to maintain that optionality for development,” Kuntz hinted on April 10. “If you’re a junior you can start something smaller at Monument Bay and grow from there, but if you’re a mid-tier, you could look at something larger. We’re working on things on the corporate side to assure we stay alive in these tough markets. One of our goals has been to bring in a mining partner, which is similar to what Premier Gold Mines (TSX: PG; US-OTC: PIRGF) and Carlisle Goldfields (TSX: CGJ; US-OTC: CGJCF) have done recently.”

Shares of Mega jumped 100%, or 4.5¢ after the news, en route to a 9¢ close at press time. The company has 173 million shares outstanding for a $16.5-million market capitalization.

The deal is another step in Yamana’s expansion strategy. The company picked up a 50% stake in the Canadian Malartic gold mine  for $930 million in June 2014, and is spending $400 million to develop its Cerro Moro gold asset in Argentina. Yamana is aiming to produce 1.45 million oz. per year by 2017, and expects to crank out 1.3 million oz. at all-in sustaining costs ranging from US$800 to US$830 per oz. this year.

The company has traded within a 52-week window of $3.93 and $9.90, and closed down 2.4% — or 12¢ after the news — at $4.66 per share. Yamana has 941 million shares outstanding for a $4.4-billion market capitalization.