Argonaut Gold moves on Prodigy

Argonaut Gold (AR-T) thinks now is the time to bolster its project pipeline through acquisitions.

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

The deal’s structure is of interest, as it is almost entirely composed of paper. Market watchers have opined that mergers and acquisitions haven’t been as strong as expected given the depressed valuations of most juniors, because larger would-be acquirers are also suffering depleted share prices, and are reluctant to issue paper while its value is so low.

But with shares in junior miners like Argonaut enjoying a nice run since the dog days of the summer (the company’s shares were 40% higher in October compared to the end of May), the appetite for a share-based deal is back.

Argonaut’s 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 at $1.08 per share, or $341 million in total, using Argonaut’s 20-day, volume-weighted average price. The offer represents a 54% premium.

Prodigy shareholders are 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 $10.3 million paid to Argonaut if the deal isn’t consummated.

Argonaut’s primary assets are its El Castillo and La Colorada gold mines 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 to 103,000 oz., from 88,000 to 97,000 oz.

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

Magino is located 40 km from Wawa, Ont., and the company is considering an open-pit mine with potential for deeper, higher-grade gold production.

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

The offer sent Prodigy shares up 49% to $1, while Argonaut shares were off 6% to $9.86 per share.