Hecla trumps Alamos with deal to acquire Aurizon

VANCOUVER — Hecla Mining (HL-N) and Aurizon Mines (ARZ-T, AZK-X) started talking about a business combination in 2006, but couldn’t agree on the terms. However, they liked each other enough that they maintained contact, waiting until the time was right to revisit the idea of merging their like-minded companies. 

Then, in January, Alamos Gold (AGI-T) made a move on Aurizon in an attempt to take over the gold producer in a moment of weakness, when a year of expansion work at its flagship mine had ground the company’s share price down to a four-year low.

Suddenly the right time was now, and so before the markets opened on March 4, Hecla and Aurizon issued a news release that was more than six years in the making.

Hecla is acquiring Aurizon in a cash-and-share deal worth $796 million, with an offer that represents a 12% premium to Alamos’ offer. If they approve the deal by a margin of two-thirds, Aurizon shareholders would receive either $4.75 — or 0.9953 of a Hecla share — or a combination of cash and shares for each Aurizon share held.

Shareholders’ choices will be limited by a cash cap of $513.6 million and a Hecla share cap of 57 million shares. If all shareholders receive cash and shares, the payout will comprise $3.11 in cash and 0.3446 of a Hecla share for each Aurizon share.

Hecla and Aurizon estimate that the combination would create a mining company worth upwards of $1.6 billion.

Hecla already operates two mines: the Green Creek mine in Alaska, which churned out 6.4 million oz. silver and 55,500 oz. gold in 2012, and the Lucky Friday silver-lead-zinc mine in Idaho, where production just resumed after a year of downtime while the company completed necessary rehabilitation work. The Aurizon acquisition would add another mine to the list: the Casi Berardi gold mine in Quebec, which produced 137,000 oz. gold last year.

“Hecla and Aurizon together create a unique precious metals company with three long-life, high-grade, low-cost mines in some of the best mining jurisdictions in the world,” Hecla president and CEO Phillips Baker says. “These three properties have in common strong exploration potential on large and contiguous land positions, as well as locations near communities that are supportive to mining. In addition, all three use similar mining methods, enabling Hecla to leverage the knowledge and experience from each mine across the organization.”

Casi Berardi, Greens Creek and Lucky Friday are all underground mines. Casi Berardi and Greens Creek mine and process 2,000 tonnes of ore daily, while Lucky Friday works through about half that amount each day.

The deal would not be particularly dilutive for Hecla shareholders — Aurizon shareholders would own 17% of Hecla on a post-consolidation basis. Hecla’s board has fully endorsed the deal, pointing out that the acquisition would give Hecla an operating gold mine in low-risk Quebec, a 103% increase in gold reserves and a slate of robust exploration properties.

Aurizon’s board also fully supports the deal. Aurizon argues that the Hecla offer is superior to the Alamos option. Alamos is offering $4.65 per share, or 0.2801 of a share for each Aurizon share, in a bid valued at $780 million.

Aurizon called the offer “financially inadequate and opportunistic.” In explaining why Alamos’ bid was insufficient, Aurizon pointed out that research analysts on average value Casi Berardi at $600 million and ascribe the advanced-stage Joanna property a value of $195 million, which means those properties alone give Aurizon a net asset value of $795 million. The company also has $200 million in cash.

Aurizon shareholders were pleased with the deal: the company’s share price climbed 14¢ on the news to close at $4.49. It has been trading near that level since Alamos made its offer six weeks ago, which sparked a 33% rally. Hecla did not fare so well, losing US57¢ to close at US$4.07. The loss brought Hecla within US37¢ of its 52-week low.

Speaking at a company presentation at the Prospectors and Developers Association of Canada convention in Toronto on March 5, Alamos president and CEO John McCluskey went on a five-minute rant, calling the Hecla offer and Aurizon’s acceptance of it “disgusting” and a “black eye for the industry,” and condemning Scotiabank for simultaneously financially backing Hecla’s offer and serving as an advisor to Aurizon.