Aurizon Mines‘s (ARZ-T, AZK-X) board of directors is urging shareholders to reject an unsolicited $435-million bid from Northgate Minerals (NGX-T, NXG-X).
Northgate’s offer of 0.741 of one of its own shares for each outstanding Aurizon share was worth $3 per share, or a 30.5% premium over Aurizon’s closing share price on May 19 — the last business day prior to the bid’s unveiling. Subsequent movement in each company’s share price has swung the offer to an 8.4% discount to Aurizon’s closing share price on June 14 — the day before Aurizon’s formal response to the bid.
Says Aurizon chief executive David Hall: “Northgate’s offer is not an attractive proposition for Aurizon shareholders. It would dilute their ownership in Casa Berardi just as it is about to go into production, while exposing our shareholders to a host of new risks and uncertainties.”
Hall says Aurizon is in talks with other interested parties, and is examining a variety of strategic alternatives. These alternatives include staying the course to bring the Casa Berardi gold mine in northwestern Quebec into production itself in the fourth quarter.
He says doing so would reward shareholders with a higher valuation multiple. Under the Northgate proposal, existing Aurizon shareholders would see their interest in the mine diluted to 30%.
Hall also says that Northgate’s offer fails to address the potential upside at Casa Berardi. Initial plans at Casa Berardi are based on reserves of 4.1 million tonnes running 9.2 grams gold per tonne, for 1.2 million oz. gold, representing only 45% of the project’s global resource.
Plans at Casa Berardi call for annual production of about 175,000 oz. gold to begin in November. The scheme delivers an internal rate of return of more than 45%, with capital payback coming in less than 2 years, based on current gold prices and exchange rates.
The company is also studying the feasibility of mining the crown pillar of the property’s East mine via an open pit.
Aurizon plans to begin legal action to enforce a confidentiality and standstill agreement singed by the pair in mid-October. The company says Northgate’s offer constitutes a breach of the agreement, which, among other things, prohibits Northgate from acquiring Aurizon securities for one year.
“Having determined the offer is not in the best interests of our shareholders, we cannot permit Northgate to violate this express written agreement in order to make an opportunistic, hostile takeover bid that doesn’t recognize Aurizon’s true value,” concluded Hall.
“We are committed to maximizing value for our shareholders but will do so on our timetable, rather than one designed by Northgate.”
Shares in both companies were around 7% higher amid a broader recovery by the Toronto Stock Exchange in mid-afternoon trading on June 15.
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