New Pacific Metals hopes to acquire debt-ridden Tagish Lake Gold

Shares of indebted Tagish Lake Gold (TLG-V) soared 50% to 6¢ apiece with 6.39 million shares changing hands on news that China-focused New Pacific Metals (NUX-V) intends to make a friendly take-over offer for the junior with deposits in the Yukon. New Pacific currently holds about 9.9% of Tagish Lake.

New Pacific will offer to purchase in cash Tagish Lake’s $7.4 million in secured and unsecured debt. Secured creditors would receive 100% of their claim amounts and unsecured creditors 100% of their debt subject to the fulfillment of certain conditions under a formal take-over bid.

The offer permits Tagish Lake shareholders to choose between 6¢ per share in cash or 0.0822 of a New Pacific share at an implied price of 73¢ per share, being the 20-day volume-weighted average trading price of New Pacific shares up to July 2.

The offer represents a 50% premium over both Tagish Lake’s closing share price of 4¢ on July 2 and its 20-day and year to date volume-weighted average price.

The offer for Tagish is also a premium of about 860% over an earlier take-over offer from Yukon-Shaanxi Mining, a private company, which valued Tagish Lake’s shares at $0.00625 per share. TSXV did not approve the proposed deal and the bid was dropped.

The latest offer represents “a superior alternative to Tagish Lake management’s submission to the Supreme Court of British Columbia in the CCAA action that the asset value of the company is less than its $7.4 million debt,” New Pacific Metals asserted.

The take-over would remove Tagish Lake from creditor protection “with a compelling premium to the longstanding share price, in a bid that enables them to choose to cash out or participate in the development of Tagish Lake’s Skukum Creek gold district,” New Pacific Metals stated in a press release.

In addition, New Pacific has $10 million in cash and a further $10 million available through a line of credit with one of its shareholders. The letter of credit bears interest at the Bank of Montreal prime rate plus 7% per year, and New Pacific must pay an establishment fee of up to $350,000.

Skukum Creek is a high-grade gold and silver deposit that Tagish Lake was trying to advance toward production, about 80 km southwest of Whitehorse in Canada’s Yukon Territory.

The project has measured and indicated resources of 800,000 tonnes grading 6.78 grams gold per tonne and 248 grams silver per tonne in the Rainbow, Kuhn and Ridge zones. Inferred resources add 90,000 tonnes grading 6.53 grams gold per tonne and 225 grams silver.

New Pacific Metals’ flagship project is its Huaji gold prospect in southern China’s Guangdong province, about 180km northwest of the provincial capital of Guangzhou. The junior has strong backing, with Silvercorp Metals (SVM-T, SVM-N), China’s largest silver producer, its main shareholder with a 23.2% stake. On June 14, Silvercorp’s chairman and chief executive, Rui Feng, became president of New Pacific Metals.

The Huaji gold project is in the centre of the Dayao mountain range and the company has drilled about 15,279 metres. Drill highlights included 3.1 metres grading 13.55grams gold per tonne; 1.23 metres cutting 10.50 grams gold; and 1.94 metres returning 46.06 grams gold and 8.13 metres of 55.05 grams gold, including 4.43 metres of 99.91grams gold.

New Pacific expects to formally launch its offer as soon as it receives a list of Tagish Lake’s shareholders. In Toronto, the company’s shares closed at 77¢ per share and have traded in a 52-week band of 60¢-$1.10 per share. The company has 30.22 million shares outstanding.