Contango grows Alaska gold footprint with two buys

Emerging North American gold producer Contango Ore (NYSE-A: CTGO) is boosting its landholding and production in Alaska with the acquisition of Canada’s HighGold Mining (TSXV: HIGH; US-OTC: HGMIF) and an Avidian Gold (TSXV: AVG) subsidiary. 

Fairbanks, AK-based Contango plans to buy all of HighGold’s issued and outstanding shares for US40¢ (55¢) per share, a 59% premium of Contango’s and HighGold’s 20-day volume weighted average price. It values the Vancouver-based junior at US$37 million ($51 million).

Once the deal is completed, existing Contango investors will own 85% and HighGold shareholders will have the rest of the combined company. Buying HighGold is to increase Contango’s annual gold production to more than 150,000 oz., the company said.

Contango is also buying a subsidiary of Avidian Gold Alaska for US$2.4 million in cash and a potential future payment of US$1 million, the companies said. The total exceeds Avidian’s market capitalization of less than $1.5 million at the time of negotiations.

Shares in Contango slid more than 7% on Thursday morning in New York to US$19.98 apiece, valuing the company at US$187.8 million. They’ve traded in a 52-week range of US$14.03 to US$33.67. Avidian Gold gained a third to 2¢ apiece in Toronto, for a market capitalization of $2.8 million. 

DSO model 

HighGold’s Johnson Tract high-grade gold project fits well with Contango’s strategy of building a multi-asset gold production platform in Alaska, the buyer said. 

The company plans to leverage its expertise and the expected cash flow from its Manh Choh project, a 70:30 joint venture in Alaska with Kinross Gold (TSE: K; NYSE: KGC), to speed up the development of Johnson Tract. Contango will use its direct shipping ore (DSO) strategy that sees ore processed in an off-site facility. 

The DSO model, which Contango applied at Manh Choh and calls low-risk, aligns with the growing miner’s criteria for projects that are located near infrastructure, have sufficient grade, and have a simple ore body for permitting.

“Contango’s unique business model sets it apart in the mining sector,” HighGold president and CEO Darwin Green said in the statement. “Focusing on assets with potential for DSO development,” he said, “mitigates much of the risk of conventional stand-alone mines.”

Avidian

Avidian Alaska is the owner and controller of the Golden Zone and Amanita NE gold properties. It has an option to acquire all of the Amanita gold property. The Golden Zone, located between Anchorage and Fairbanks, is close to rail and highway infrastructure. 

The Amanita and Amanita NE gold properties are adjacent to Kinross Gold’s Fort Knox operation near Fairbanks.

“This transaction is a win-win, particularly considering the current market investment climate for non-producing junior exploration companies like Avidian,” director and chairman Dino Titre said in the statement.

The deal, subject to Avidian shareholder approval, will leave the Toronto-based gold producer debt free, with a clean balance sheet and with cash plus marketable securities of about $3 million at current equity prices.