Argonaut Gold moves on Prodigy

Argonaut Gold has decided that now is the time to start bolstering its pipeline through acquisitions.

The company announced a friendly offer for Prodigy Gold (PDG-V) and its key Magino gold project in Ontario.

Of interest is the structure of the deal as it is almost entirely composed of paper. Market watchers have opined that M&A isn’t as strong as to be expected given the depressed valuations of most juniors, because larger would-be acquirers were also suffering depressed share prices and were reluctant to issue paper at such levels.

But with mid tier miners like Argonaut enjoying a nice run since the dog days of the summer (the company’s shares were 40% higher in October from where they were at the end of May) the appetite for a share based deal is back on.

Argonauts offer, which has the unanimous support of Prodigy’s board, would see Prodigy shareholders get 0.1042 of an Argonaut Gold share and $0.00001 in cash per Prodigy share. That values Prodigy’s equity at $1.08 per share or $341 million in total using Argonaut’s 20-day volume-weighted average price. The offer represents a premium of 54%.

Prodigy shareholders are slated to vote on the proposal in December, and if they approve it, they would end up with a 22% stake in Argonaut.

The offer comes with a break fee of $10.25 million paid to Argonaut Gold if the deal isn’t consummated.

Argonaut’s primary assets are its El Castillo and La Colorada mines, both of which are in Mexico. It also has the advanced exploration stage San Antonio project in Baja California Sur, Mexico.

The company announced record third quarter gold production of 31,074 oz. and increased its 2012 production guidance to 101,000 -103,000 oz. from 88,000-97,000 oz.

When and if it secures Prodigy’s assets, Argonaut will secure better geographical diversification and will move it closer to its goal of being a 500,000 oz. producer in the future.

Prodigy’s Magino sits 40-km west of Wawa in Ontario and the company is considering an open-pit mine with the potential for deeper, higher grade gold production.

Magino currently has indicated resources of 223.5 million tonnes grading 0.87 grams gold for 6.2 million oz. and 13.8 million tonnes grading 0.8 grams gold for 355,190 oz. of inferred resources.

The offer sent Prodigy shares up 49% to $1.00, while Argonaut shares were off 6% to $9.86 per share.