Gold miner B2Gold (BTO-T) looks to be banking on its proven ability to operate in difficult locales, as it moves forward with a US$1.1-billion, all-stock friendly bid for Australia’s CGA Mining (CGA-T, CGX-A), and its Masbate gold mine in the Philippines.
The two companies have struck a deal to exchange 0.74 of a B2Gold share for each CGA share held, equating to roughly $3.18 per CGA share. The offer represents a 22% premium for CGA shareholders based on a 20-day, volume-weighted average price for the respective companies, or a 26% premium over closing prices on Sept. 17.
“We believe that this transaction is typical of the types of deals we have done in the past, and will continue to do,” B2Gold president and CEO Clive Johnson commented during a conference call.
B2Gold would see equity dilution of 62%, or 250 million shares, in exchange for bumps in production of around 162% in 2013; in reserves of 375%; and in resources by 150%. B2Gold and CGA shareholders would hold approximately 62% and 38% of the combined entity, which would have a market capitalization approaching US$2.9 billion.
Total post-merger production for 2013 is pegged at 350,000 oz. gold from three operating mines — which include B2Gold’s La Libertad and Limon gold mines in Nicaragua — with aggregate reserves jumping to 3.9 million oz. gold. B2Gold holds 13 million proven and probable tonnes grading 2.02 grams gold per tonne for 837,637 contained oz. at its two mines, and CGA holds 119 million probable tonnes averaging 0.83 gram gold for 3.2 million contained oz. at Masbate.
“These are win-win deals where we are partnering up with other companies that have good management and good assets. CGA is a great company, with a strong operational team in the Philippines that have had success,” Johnson said.
Both companies had been shopping in the mergers and acquisitions space on opposite sides of the ledger, with CGA hoping to pass the reins to a more established mine operator, and B2Gold looking to expand its production portfolio, and diversify its operating jurisdictions.
Johnson said that CGA was brought to B2Gold’s attention by
Haywood Securities, and that the merger process started up a number of months ago. The companies determined they had compatible interests and complementary expertise.
“We think the deal is outstanding from both shareholder perspectives,” CGA president and CEO Michael Carrick said, who cited project diversity, political de-risking and greater liquidity as benefits for CGA shareholders. “This merger is exactly consistent with our management’s original strategy, getting the asset to design capacity and moving it into safe hands. We searched globally for the right management team to take control, and we’re absolutely confident we’ve found them.”
CGA’s wholly owned Masbate project is a carbon-in-leach, open-pit and underground mine located on the island of Masbate, 350 km south of Manila. The operation is the Philippines’ largest gold mine, and has produced 500,000 oz. at average cash-operating costs of US$654 per oz., since CGA poured its first gold in May 2009. The mine produced 50,800 oz. gold during the second quarter at an average cost of US$769 per oz., and remains on track to meet its guidance at 200,000 oz. gold in 2012.
CGA has been operationally consistent, achieving equivalent throughput levels of 7.6 million tonnes per annum in May, after expanding annual milling capacity to 6.5 million tonnes. The company has also started preliminary studies on the potential to ramp up mine capacity to the 10-million-tonne-per-year level over the long-term.
“We’ve found the Philippines an extremely good and reliable place to operate a gold mine,” Carrick replied when asked about the jurisdiction. “It is true you require more permits than some other countries, but more importantly, once you’ve geared up to work through the bureaucracy in a professional and diligent way, permitting is reliable and predictable.”
The Masbate property contains 16 km of mineralized strike that runs southeast, indicating the potential for further exploration success.
CGA’s 2012 exploration budget clocks in at US$20 million, with 60,000 metres, or half of that, aimed at scouting regional targets. Drilling at the company’s Montana North target has returned potential for additional mineralization over a 750-metre strike to the northwest, including 32 metres grading 1.54 grams gold.
“Our objective as a company is to grow as a serious player in the sector through acquisitions and exploration,” Johnson said, citing Mabate’s growth potential from both a production and exploration angle as what attracted B2Gold to the project. “Due diligence is an important part of what we do, and we’ve sent our team down on site and done extensive legal, financial and geological diligence on the project. We’ve been impressed with the jurisdiction, and with what CGA has put together in terms of management and operations. Our level of confidence is extremely high.”
Markets were not enthusiastic about B2Gold’s acquisition, with company shares dropping 12%, or 51¢, on above-average, 21-million share volumes, before closing the day at $3.79 per share. Analysts on the conference call were concerned about dilution, as well as political and social risks associated with operating in the Philippines, but Johnson again cited the company’s due diligence and CGA’s operational experience in the country as major de-risking factors.
Launching an all-share bid was the most-appealing option for B2Gold, as it had US$77 million in cash and equivalents at the end of the second quarter, and a number of development and exploration costs already on the books.
Johnson said the bid would not hinder the company’s ability to meet its development schedule on other assets.
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