Steppe to create Mongolia’s largest gold producer with Boroo merger

Mongolia-focused Steppe Gold (TSX: STGO; US-OTC: STPGF) is set to triple its annual production and elevate its status as the country’s largest and leading gold producer with the acquisition of Boroo Gold LLC.

In a press release Monday, Steppe said it has signed a binding term sheet to acquire Boroo in an all-share transaction. The share exchange ratio will ensure Boroo shareholders hold a 58.8% interest in Steppe upon completion.

In addition, Boroo and/or its associates will have a right of first refusal to acquire the Tres Cruces gold project located in Peru at fair market value. This right is valid for six months following completion of the transaction.

“Our production is expected to triple over the next two years to 90,000 oz. and 160,000 oz. by 2026, increasing our financial strength to repay the non-dilutive US$150 million project financing for the ATO gold mine Phase 2 expansion and to advance our exploration portfolio,” Bataa Tumur-Ochir, CEO of Steppe, confirmed in the press release.

Steppe is the only TSX-listed precious metals producer in Mongolia, a country the International Monetary Fund identifies as one of the most promising of the 29 resource-rich developing countries due to its natural resource riches. The Mongolian government has over the past decade introduced investor-friendly changes to make the country a more favourable destination for foreign investment.

Shares of Steppe Gold rose 1.5% by mid-day in Toronto on Monday following the announcement, for a market capitalization of $68.9 million.

Established in 1997, Boroo’s main asset is its namesake gold mine in the northern province of Selenge, as well as the adjacent Ulaanbulag mine. Together, they have an average gold production of over 60,000 oz. per year and an expected mine life of beyond 2030. These will effectively triple Steppe’s existing annual production of 30,000 oz. from the ATO (Altan Tsagaan Ovoo) gold mine.

In the longer term, however, the company said it is targeting 200,000 oz. per year, taking into account the ATO Phase 2, adding that annual production could reach 160,000 oz. as soon as 2026.

Moreover, the transaction is expected to add to the over 4 million oz. of gold equivalent to Steppe’s existing resource base.

In July 2023, Steppe signed a binding term sheet to provide up to US$150 million to fully fund the construction of the ATO phase two expansion. During this phase, the ATO mine will recover 103,000 oz. of gold-equivalent over a 12-year span.

Tumur-Ochir also said that the deal provides shareholders with “improved optionality” at the Tres Cruces gold project in Peru while maintaining the company’s focus on growing its production profile in Mongolia.

A definitive agreement between Steppe and Boroo will be negotiated over the coming weeks, with the exclusivity period ending on March 18, 2024.