Centerra bids $310M for AuRico

VANCOUVER — Centerra Gold (TSX: CG; US-OTC: CAGDF) is set to expand its British Columbian footprint via an all-cash, $310-million bid for AuRico Metals (TSX: AMI; US-OTC: ARCTF) and its flagship Kemess copper-gold asset, 430 km north of Prince George.

The miner will pay $1.80 in cash for each AuRico share. The valuation equates to a 37% premium based on 20-day, volume-weighted average pricing.

Centerra said the brownfield Kemess site could offer “meaningful synergies” with its Mount Milligan copper-gold operation, 155 km northwest of Prince George, which it picked up through the U$1.1-billion acquisition of Thompson Creek Metals in mid-2016.

“We see a project that’s significantly de-risked and fits well into our overall portfolio,” Centerra chairman Stephen Lang said during a conference call.

“We have a balance sheet capable of not only funding the acquisition, but moving our overall development portfolio forward. We also see significant upside potential in terms of integrating the Kemess East deposit into the underground mine plan. It’s just a great project in a strong mining jurisdiction that fits well into our long-term strategy,” he added.

Aerial photo of the Kemess project 430 km northbound flight from Prince George, British Columbia. Photo by Matthew Keevil.

Centerra holds in excess of US$350 million in cash to fund the acquisition, and has secured a new US$125-million “acquisition facility.”

AuRico emerged as a spinout vehicle after the US$1.5-billion merger of AuRico Gold and Alamos Gold (TSX: AGI; NYSE: AGI) in early 2015.

The junior company received approval from the Canadian Environmental Assessment Agency and British Columbia Environmental Assessment Office in March for a $600-million redevelopment plan focused on the Kemess Underground (KUG) deposit.

The panel-cave operation could produce 106,000 oz. gold and 47 million lb. copper annually over a 12-year mine life at coproduct all-in sustaining costs of US$718 per oz. gold.

AuRico recently filed a feasibility study on KUG probable reserves of 107 million tonnes grading 0.54 gram gold per tonne, 0.27% copper and 1.99 grams silver per tonne, or 1.9 million contained oz. gold, 630 million contained lb. copper and 6.9 million contained oz. silver.

“When I look back to when we were spun-out it was really due to a sentiment held by management and the directors that Kemess was undervalued,” AuRico president and CEO Chris Richter added.

“But that was at a time when metal prices were really challenging. We’ve invested serious time in exploring project financing and this announcement is the culmination of a lot of due diligence in terms of our options moving forwards,” he continued.

AuRico has also outlined resources at the nearby Kemess East deposit, which is not included in KUG designs. The expansion opportunity has measured and indicated resources of 113 million tonnes grading 0.46 gram gold, 0.38% copper and 19.4 grams silver.

The Kemess asset offers Centerra another development opportunity after more permit delays at its Oksut gold project in Turkey, and an unclear time line at its Gatsuurt gold project in Mongolia.

The company also picks up a “free cash-flow generating” royalty portfolio headlined by a 1.5% net smelter return (NSR) royalty on Alamos’ Young-Davidson gold mine in Ontario, and a 2% NSR royalty on Kirkland Lake Gold’s (TSX: KLG) high-grade Fosterville gold mine in Australia.

Kirkland Lake’s Fosterville gold mine in Victoria, Australia. Credit: Kirkland Lake Gold.

Centerra said it could make a construction decision on Kemess by early 2019, after final permit approvals.

“We’ve had some interaction with B.C.’s New Democratic Party government at Mount Milligan and they’re clearly very interested in retaining jobs, particularly in the northern interior of the province,” Centerra vice-president and chief operating officer Gordon Reid said. “So our expectation is the permit process with proceed and things will be worked through in normal course.”

Centerra is scheduled to produce between 775,000 and 815,000 oz. gold — and 60 million lb. payable copper — this year at by-product all-in sustaining costs ranging from US$743 to US$824 per ounce.

Centerra CEO Scott Perry has fully recused himself from the transaction, which is expected to close in early 2018, as he holds director positions with both companies.

BMO Capital Markets analyst Andrew Breichmanas has a “market perform” rating on Centerra, alongside a $10.50-per-share price target.

He notes that the deal will “add a lower-risk brownfield development to the company’s growing project pipeline, and further shift the jurisdictional exposure towards Canadian operations.”

BMO Research calculates a US$42-million net present value to AuRico’s royalty portfolio at a 5% discount rate.

Centerra shares have traded in a 52-week range of $5.56 to $9.35 per share, and closed at $7.76 at press time. The company has 292 million shares outstanding for a $2.3-billion market capitalization.