Integra secures cash flow with Florida Canyon merger

A $95 million deal that would see Integra Resources (TSXV: ITR) acquire Florida Canyon Gold (TSX-V: FCGV) gives it producer status and immediate revenue to fund its pipeline of development projects in a booming gold market.

The new company is to produce 70,000 oz. gold per year from the Florida Canyon gold mine, a well-established heap leach operation in Nevada. Set to close by year-end, the merger announced on Monday also includes two key development projects: Integra’s crown jewel, the DeLamar project in Idaho, and the Nevada North project. They’re both within three-hour drives of Florida Canyon in the Great Basin covering most of Nevada and parts of Utah, Oregon, Idaho, and California.

“This merger fulfills our goal to become a gold producer in the western U.., specifically in the Great Basin,” Integra executive chair George Salamis told The Northern Miner in an interview on Monday. “The cash flows from Florida Canyon will fund future exploration and permitting initiatives, reducing the need for dilution by returning to the market for financing.”

This deal is set against a backdrop of record gold prices spurring increasing consolidation in the sector, with peers in the Great Basin and beyond pursuing mergers to strengthen their positions. Companies such as Calibre Mining (TSX: CXB; OTCQX: CXBMF), Endeavour Mining (LSE: EDV; TSX: EDV), and Equinox Gold (TSX: EQX; NYSE-AM: EQX), all transitioned from explorers to producers in the past five years through strategic acquisitions, while others have focused on expanding their asset portfolios.

However, the market punished this merger. Integra and Florida Canyon shares plunged 16% to $1.24 and 13% to 55¢ per share, respectively, on Monday in Toronto. The companies have market capitalizations of $110.6 million and $76 million.

Florida Canyon Gold shareholders will receive 0.467 of an Integra share for each share they own, resulting in a 60-40 ownership split between Integra and Florida Canyon shareholders. The merger requires Integra to replace the surety bond guaranteed by Alamos Gold (TSX: AGI; NYSE: AGI), ensuring operational stability and regulatory compliance for Florida Canyon. Alamos bought Argonaut Gold’s Magino mine in Ontario and spun out the rest of Argonaut’s assets to form Florida Canyon.

While Florida Canyon’s production costs have been high, recent personnel improvements and operating practices have turned performance around. The mine produced about 71,000 oz. gold-equivalent last year, with net cash and all-in sustaining (AISC) of US$1,368 per oz. and US$1,654 per oz., respectively. The mine’s AISC for 2022 was about US$1,800 per gold ounce.

By integrating Florida Canyon’s existing operations and development projects like DeLamar and Nevada North, Integra can leverage its combined assets to increase production efficiency and scale, Salamis said.

Improved capital access

Salamis emphasized that the merger with Florida Canyon is particularly timely given the current record gold prices. Investors such as Wheaton Precious Metals (TSX: WPM; NYSE: WPM; LSE: WPM) and Beedie Capital strongly support the deal, he said. Analysts might consider to re-rate the stock with a higher forecast price that could enhance investor confidence, he added.

“The merger opens up the investment pool, attracting those who only invest in producing assets with cash flow,” Salamis said. “With gold prices at record highs, this deal positions us for a potential future re-rating as we advance our development projects.”

The leadership structure will remain largely the same, with Integra incorporating board members from Florida Canyon and seeking a chief operating officer with heap leach expertise. The combined company is to benefit from an experienced mining workforce and potential operational enhancements at Florida Canyon.

The improvements include a recent US$40 million investment in a leach pad expansion and carbon-in-column circuit. This entails a process where gold is extracted from a cyanide solution by passing it through columns filled with activated carbon, which adsorbs the gold from the solution for recovery.

Exploration upside

Besides the operational synergies, Salamis points to the exploration potential that made Florida Canyon an attractive target, even though the main asset hadn’t seen drilling in 20 years. There are “low-hanging fruit” in “obvious” targets adjacent to the open-pit mining operation, Salamis said.

There’s also a historical 300,000-oz. gold resource in the area, which the company can start exploring immediately since the area is already permitted. The Great Basin is characterized by its arid climate, flat valleys intersected by mountain ranges and is noted for its mineral wealth.

Salamis says DeLamar is advancing through the federal National Environmental Policy Act process. It is expected to produce 135,000 oz. gold per year over an 8-year mine life.

The Nevada North project, with the Wildcat and Mountain View deposits, offers a 13-year mine life and a projected yearly output of 80,000 oz. gold. It provides significant exploration potential and synergies with Florida Canyon.