Shandong Gold to buy TMAC Resources for US$149M

In the latest Chinese acquisition of a Canadian gold miner, Shandong Gold is buying TMAC Resources (TSX: TMAC) and its Hope Bay gold project in Nunavut for US$149 million.

The news follows Zijin Mining’s acquisition of Continental Gold in March for C$1.3 billion and a bid from Silvercorp Metals (TSX: SVM; NYSE-AM: SVM) for Guyana Goldfields (TSX: GUY) in April for C$105 million.

Under the latest M&A deal, Shandong Gold will pay US$149 million in cash to acquire all of TMAC’s shares for $1.75 per share, and acquire another 12 million shares in a private placement at the same price for a further US$15 million.

The offer marks a 52% premium to TMAC’s 20-day volume-weighted average price as of May 6 and the Canadian company’s key shareholders – Resource Capital Funds and Newmont (TSX: NEM; NYSE: NEM) support the transaction. RCF and Newmont own a combined 58.6% stake in the company.

Jason Neal, TMAC’s president and CEO, was unavailable for an interview to discuss the deal. But in a press release said the deal with Shandong was the “culmination of the strategic review process” the company announced earlier this year, and noted that the Chinese gold miner “has the financial strength, technical capability and long-term vision to maximize the value of the Hope Bay camp.”

Shandong Chairman Chen Yuming, described Hope Bay as a “highly prospective high-grade gold camp which requires substantial investment to optimize production and extend mine life and maximize the value of the camp to the benefit of all stakeholders.”

Hope Bay is an 80 km by 20 km Archean greenstone belt that has been explored by BHP, Miramar, Newmont and TMAC over more than 30 years. During that time, more than $1.5 billion has been spent on exploration, infrastructure and mine and process plant development, TMAC says.

TMAC started producing gold at Hope Bay in early 2017 from Doris, its first mine at Hope Bay. The Doris plant was expanded from 1,000 tonnes per day to 2,000 tonnes per day in mid-2018. TMAC believes there is potential to grow deposits at Hope Bay at depth and through exploration at more than 90 other targets it has identified on the property.

The company released a new study on Hope Bay at the end of March. The prefeasibility study assessed building a new 4,000-tonne per day plant to replace the current 2,000-tonne per day facility by 2024 at total capital costs of $683 million, including $184 million for a new conventional processing plant. The net present value (NPV) estimate for the project, at a 5% discount rate, came in at $486 million.

TMAC also said it was evaluating an alternate concept of building an expanded plant, but on the footprint of the existing processing facility, and Neal stated in a press release at the time that “ultimately, it is more likely that the feasibility study and eventual expansion at Hope Bay will be pursued either with a new partner or a new owner of Hope Bay than by TMAC as a standalone single-asset company.”

The latest prefeasibility study included a 15-year mine life and total recovered gold of 3.1 million oz. for a production rate of just over 200,000 oz. per year with all-in sustaining costs (AISCs) estimated at US$986 per ounce.

Total reserves are now at 16.9 million tonnes at 6.5 grams gold per tonne for a total of 3.5 million oz., largely unchanged from the previous year’s estimate and contained within measured and indicated resources of 5.2 million ounces.

The reserve statement is based on four underground mines at Hope Bay — the Doris, Madrid North, Madrid South and Boston sites — with decline access from surface. The Doris deposit is currently in production.

Last year, Hope Bay produced 139,510 oz. gold.

Shandong Gold is one of China’s biggest gold producers, and its other assets include a 50% stake in Barrick Gold’s (TSX: ABX; NYSE: GOLD) Veladero mine in Argentina.

At press time in Toronto, TMAC’s shares were trading at $1.69 within a 52-week range of 44¢ and $6.95.

The company has about 115 million common shares outstanding for a $200-million market capitalization.