Goldcorp (TSX: G; NYSE: GG) is acquiring gold junior Probe Mines (TSXV: PRB; US-OTC: PROBF) in a friendly all-share deal worth $526 million.
Probe’s main asset is its 100%-owned Borden gold project near Chapleau, Ont., 160 km west of Goldcorp’s Porcupine mine in Timmins, Ont. The Borden project is one of the best gold discoveries in the province in recent years. It contains a high-grade constrained underground resource of 1.6 million indicated oz. from 9.3 million tonnes grading 5.93 grams gold, plus 400,000 inferred oz. from 3 million tonnes of 4.37 grams gold. It has a lower-grade open-pit resource of 2.32 million indicated oz. based on 70.3 million tonnes of 1.03 grams gold, and 10,000 inferred oz. based on 247 million tonnes grading 0.8 gram.
Probe recently consolidated its Borden land package, giving it a 100% ownership over 70 km of contiguous claims, likely spurring Goldcorp’s offer. The gold major owned 9.3% of Probe as the bid was launched and is offering 0.1755 of its share for each outstanding Probe share. Based on Goldcorp’s Jan. 16 close of $28.49, each Probe share is valued at $5, reflecting a 49% premium over its close. Goldcorp had estimated it would issue 17 million shares under the arrangement.
On Jan. 21, Goldcorp struck a side deal to with Agnico Eagle Mines (TSX: AEM; NYSE: AEM) to buy 7.3 million Probe shares and 2.3 million Probe warrants from Agnico for a cash consideration of $5 per share and $2.90 per warrant for an aggregate C$43 million. Each warrant allows the holder to buy a Probe share for $2.10 until May 28, 2015.
When this side deal closes at the end of January, Goldcorp will own 19.9% of Probe on a partially-diluted basis.
Chuck Jeannes, Goldcorp’s president and CEO, said the purchase of Probe fits the company’s strategy of “securing growth opportunities in and around our existing districts with a focus on low-cost, high-quality gold production.” Borden is mineable through conventional underground methods, and given its proximity to the Porcupine mine and a large milling complex, Goldcorp could transport Borden’s ore to Porcupine, reducing capital costs and permitting requirements.
Raymond James analyst Phil Russo, who covers Goldcorp, writes that it’s a small acquisition for Goldcorp. Considering the proposed synergies and that Borden won’t be a stand-alone operation, Russo adds “the premium multiple is compressed and the deal looks potentially slightly accretive to Goldcorp.” He predicts that Porcupine’s high-grade feed will be depleted in 2019, and that Goldcorp will start-up Borden that year to replace that feed. The analyst does not expect another company to bid for Probe and has a “strong buy” on Goldcorp.
“Over the past four years Borden has grown into what is widely considered to be one of the best development assets in the industry,” Probe’s president and CEO David Palmer said, adding the acquisition validates the project and provides an ongoing partnership with Goldcorp.
As part of the deal, Probe shareholders will receive one-third of a share of “New Probe” for each share held. The new exploration firm will be led by Probe’s existing chairman Jamie Sokalsky and CEO Palmer. It will hold Probe’s secondary assets, including the Black Creek chromite deposit and the Tamarack and Victory properties. All three are in the Ring of Fire in northern Ontario. The firm will retain Probe’s $15 million in cash and a $4-million receivable related to the royalty sale on Agnico’s Goldex mine in Quebec.
“We view the deal positively, as it provides a significant premium to Probe shareholders that captures the upside potential at Borden’s High Grade zone, regionally along the Borden Belt, and at Black Creek chromite via the New Probe spinco,” Raymond James analyst David Sadowski writes. He has increased his target to $5.30 — consisting of the $5-per-share takeout plus 30¢ a share for New Probe — and recommends investors approve the deal.
All of Probe’s directors and officers, who own 4.6% of the junior, have entered into lock-up and support agreements with Goldcorp. The transaction requires regulatory approvals, including by two-thirds of Probe’s shareholders. The deal is slated to close in March. Probe has agreed to a $18.4-million cancellation fee.
On the acquisition news, Probe closed Jan. 19 up 51%, or $1.70, at $5.06, while Goldcorp added 0.6%, or 18¢, to finish at $28.67.
Probe shareholders should reject this low ball bid. The Borden project covers 70 km of prospective strike length and is open along strike and at depth.