Shares of Agnico Eagle Mines fell on Tuesday after it agreed to buy TMAC Resources for about C$286.6 million ($225 million), two weeks after Canada’s government rejected Shandong Gold Mining’s bid for the indebted company on national security grounds.
The deal is a lifeline for TMAC and adds to Toronto-based Agnico’s already sizeable footprint in the Canadian Arctic territory of Nunavut, where it operates the Meliadine gold mine and Meadowbank gold complex.
Agnico said it will pay C$2.20 per share for TMAC, which operates a gold mine in the territory’s Hope Bay region, a 26% premium to the C$1.75 per share that Shandong Gold was to pay.
Agnico shares fell as much as 2.9% while TMAC’s stock price jumped nearly 39% in early trading.
The acquisition price is “reasonable given the stable jurisdiction, and is within typical valuation ranges,” said Fahad Tariq, an analyst with Credit Suisse.
About C$680 million is needed for an expansion of TMAC’s underperforming Doris mine, including construction of a new mill.
Agnico Chief Executive Sean Boyd said his company will revisit those plans but the immediate focus is on exploration.
The miner is adding reserves and resources of 10-plus million ounces of gold “at an extremely good price. And it’s in an area we know well,” Boyd said, justifying the premium.
“We feel very comfortable with our ability to improve operations there and to find a lot more gold,” he said.
Shandong Gold’s C$230 million bid for TMAC was blocked by Ottawa amid concern about a Chinese state-owned entity operating in the country’s sensitive Arctic region, seen as vital as retreating sea ice opens new shipping routes.
A Shandong Gold executive said the company had already acquired a stake of under 10% in TMAC for around $15 million at C$1.75 per share in the first half of 2020 as the target company needed funding for its procurement needs.
Selling these shares at a higher price compensates somewhat for “fees and time wasted on the project,” the executive added.
($1 = 1.2735 Canadian dollars)
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