Eldorado eyes the Abitibi with $590M Integra deal

VANCOUVER — Eldorado Gold (TSX: ELD; NYSE: EGO) is set to establish a Canadian foothold with a cash-and-share bid for Integra Gold (TSXV: ICG; US-OTC: ICGQF) and its historic Lamaque gold project in Val-d’Or, Quebec.

Integra investors will have an option to receive $1.2125 per share in cash, Eldorado shares or a combination of both. The offer equates to a 46% premium to Integra’s 20-day, volume-weighted average price. The total transaction value is $590 million and Integra shareholders could own up to 10% pro-rata equity interest in the combined company.

The maximum cash payable by Eldorado would be $129 million, or 25% of the total consideration.

Drill rigs at Integra Gold’s Lamaque gold project in Val-d’Or, Quebec. Credit: Integra Gold.

Lamaque hosts indicated resources of 5.1 million tonnes grading 9.13 grams gold per tonne for 1.5 million contained oz., and 3.5 million inferred tonnes at 7.94 grams gold for 897,000 contained ounces. The resource estimates assume a 5 gram gold cut-off grade. Integra acquired the Sigma-Lamaque mill in late 2014.

Lamaque historically produced 4.5 million oz. and was last in operation in 2012. The Sigma mill has a 2,400-tonne-per-day throughput capacity with a crush, grind and carbon-in-leach circuit.

Integra had expected to complete 81,000 metres of drilling at the site in 2017, and was pursuing ramp development for a bulk sample on its Triangle deposit by year-end.

Integra Gold already began development of a $26 million exploration ramp at its Triangle gold deposit in Quebec’s Val-d’Or gold camp. The company had planned to use the ramp for definition drilling and bulk sampling of the deposit’s C1 and C2 shear zones. Credit: Integra Gold.

Integra released a preliminary economic assessment on Lamaque in February that models a $175-million development cranking out 135,000 oz. gold annually over a 10-year mine life.

The junior has taken advantage of local infrastructure, and Quebec’s generous flow-through share system, to drill at a furious rate over the past few years. Integra completed nearly 120,000 metres of drilling over the past 18 months, which doubled indicated resources at its Triangle deposit to 6.3 million tonnes at 7.3 grams gold for 1.47 million contained ounces.

The company held permits for a 5,000-tonne bulk sample, and had been preparing an application to extend it to 50,000 tonnes. In addition, Integra intended to convert the remaining Triangle exploration claims to mining leases.

The crushing and screening area at Eldorado Gold’s Kisladag gold mine in Usak Province, Turkey. Credit: Eldorado Gold.

The bid marks the first major move by Eldorado Gold under its new president and CEO George Burns, who was appointed in late 2016 after having served as Goldcorp’s (TSX: G; NYSE: GG) chief operating officer. Eldorado had not returned a request for comment at press time.

Burns noted in the release that Eldorado had followed the work at Lamaque for the last 18 months, and that he was excited about entering Quebec’s Eastern Abitibi after his experience of building and operating gold mines in Canada.

Many expected the company to make an acquisition after it exited China after $900-million in asset sales in the country in late 2016.

The Integra purchase would decrease Eldorado’s geopolitical risk, considering that its current operating assets are in Turkey and Greece.

The company already had a 13% stake in Integra dating back to mid-2015, when it picked up 52.1 million shares at 28¢ per share, or an 11% premium at the time.

Scotiabank analyst Tanya Jakusconek noted the bid valuation “appears reasonable,” based on Eldorado paying US$179 per oz. of gold resource at Lamaque.

Scotiabank has a “sector outperform” rating on the Eldorado, along with a US$4.25-per-share, one-year price target.

“At first glance, we view this acquisition as mildly positive because it diversifies [Eldorado’s] geopolitical risk with upside at a reasonable cost, particularly if it can achieve material tax synergies,” Jakusconek wrote on May 15. The company “has the balance-sheet capacity to internally fund the acquisition and the capex to develop the asset.”

The core shack at Integra Gold’s Lamque gold project. Credit: Integra Gold.

Eldorado will also inherit Integra’s 9.9% equity stake in explorer Eastmain Resources (TSX: ER; US-OTC EANRF) and its 132 sq. km land package in the James Bay gold camp in northern Quebec.

Eldorado expects to produce between 365,000 and 400,000 oz. gold in 2017 at all-in sustaining cash costs ranging from US$845 to US$875 per ounce.

The company’s shares dropped  8%, or 39¢, after news of the bid en route to a $4.61-per-share close at press time.

Eldorado shares have traded in a 52-week range of $3.46 to $6.71. It has 717 million shares outstanding for a $3.3-billion market capitalization. It reported US$1.1 billion in “total liquidity” at the end of March.