Goldcorp offers $520M for Kaminak

Goldcorp (TSX: G; NYSE: GG) has offered to buy Kaminak Gold (TSXV: KAM) in a $520-million, all-share deal to get its hands on the junior’s high-grade Coffee gold project in the Yukon.

The Coffee project is a structurally hosted hydrothermal gold deposit that sits within Yukon’s White Gold district, 130 km south of Dawson City, and 300 km northeast of Whitehorse.

Goldcorp, the world’s fourth-largest gold producer, became interested in Coffee after a January 2016 feasibility study and signed a confidential agreement with Kaminak in early March, Kaminak’s vice-president of corporate development Tony Reda says.

The study — led by JDS Energy and Mining — outlined an attractive heap-leach, open-pit, low-cost operation at Coffee. With a 10-year life, a mine could produce an average 184,000 oz. gold annually at all-in sustaining costs of US$550 per oz. gold. Estimated start-up costs are $317 million, with another $161 million in sustaining capital.

While Coffee has a global resource of 5 million oz., the study was based on an indicated resource of 3 million oz. (63.7 million tonnes grading 1.45 grams gold per tonne), which includes 2.2 million oz. in reserves (46.4 million tonnes at 1.45 grams gold).

“There are not too many assets like Coffee out there. As you might suspect, there was a lot of corporate interest … with the recent move in gold price, the feasibility study and the positive sentiment returning to the gold space, [many] mining companies saw their share prices go up in value and there was some competitiveness with the asset. But we didn’t run a formal sale process,” Reda says.

A building in the camp at Kaminak Gold’s Coffee gold project. Photo by Matthew Keevil.

He notes Goldcorp’s offer was “compelling,” and has been unanimously approved by Kaminak’s board.

The major is offering 0.10896 of a share for each Kaminak share held. This implies a $2.62 value to each Kaminak share and a 40% premium over the junior’s 20-day, volume-weighted average share price, and a 33% premium over its May 11 closing price.

“There’s an immediate attractive premium for shareholders,” Reda says. “You’re locking in a win.

“Regardless of how great your team is or how great your asset is, permitting and building — if we look at all the precedents out there — it could always be a challenging time. This secures the value for our shareholders, and gives them liquidity and exposure to Goldcorp’s asset base … and their operational capabilities.”

In a release, Goldcorp’s CEO David Garofalo said the purchase fits the company’s “strategy of partnering with junior exploration companies to identify and develop mining districts with significant exploration potential that is expected to grow our net asset value per share.”

Garofalo was not available to comment more on the deal before press time.

The Coffee land package covers 600 sq. km and shows “potential for near-mine discoveries, with mineralization remaining open along strike and at depth,” Goldcorp says.

Kaminak has only explored 20% of the Coffee project, Reda says, adding that Goldcorp with its treasury could further unlock the project’s geological potential. “They have the wherewithal to take this project through, and they have the wherewithal to capture the exploration upside at Coffee.”

The deal requires approval from two-thirds of Kaminak shareholders to close. Directors, officers and certain shareholders holding 27.5% of Kaminak’s shares have already agreed to vote for Goldcorp’s offer.

“On first glance, we view the deal value as fair, although we see room for moderate interloper risk despite the 27% shareholder lock up, given the lack of development-stage assets of the calibre of Coffee,” Raymond James analyst Phil Russo writes in a note.

The acquisition, which has a $20.3-million termination fee, would close by mid-August.