Mr. George Ogilvie of Kirkland Lake reports
KIRKLAND LAKE GOLD CREATES AN ONTARIO-FOCUSED INTERMEDIATE GOLD PRODUCER WITH THE ACQUISITION OF ST ANDREW
Kirkland Lake Gold Inc. and St. Andrew Goldfields Ltd. have entered into a binding definitive agreement whereby Kirkland Lake will acquire all of the outstanding common shares of St. Andrew pursuant to a plan of arrangement to create a multiasset, Ontario-focused intermediate gold producer.
Under the terms of the agreement, common shareholders of St. Andrew will receive 0.0906 of one common share of Kirkland Lake for each St. Andrew common share held. The exchange ratio represents the equivalent of 47 cents per St. Andrew common share, based on the closing price of Kirkland Lake on Nov. 16, 2015. The exchange ratio implies a 46-per-cent premium based on both companies' 20-day volume-weighted average prices and a 25-per-cent premium to St. Andrew's closing price, both as at Nov. 16, 2015, on the Toronto Stock Exchange. The exchange ratio implies a total equity value of approximately $178-million on a fully diluted in-the-money basis.
Upon completion of the proposed transaction, existing Kirkland Lake and St. Andrew shareholders will own approximately 71 per cent and 29 per cent of the combined company, respectively.
Highlights of the combined company
Diversified production base: Combined entity will operate four mines
and two mills in Ontario's southern Abitibi greenstone belt, one of the
world's most attractive mining jurisdictions.
- Strong financial position and flexibility: Combined entity will have
increased financial flexibility through the aggregated positive cash
position and anticipated free cash flow.
- Enhanced scale and capital markets profile: Expected to increase
analyst coverage, enhance share trading liquidity and appeal to a larger
- Strong production growth profile: Combined entity is expected to
produce 260,000 to 310,000 ounces of gold in 2016 with attractive cash costs between
$600 (U.S.) and $690 (U.S.) per ounce of gold.
- Exploration opportunity: Combines two companies with significant
exploration upside in two historically prolific and underexplored camps,
close to existing mine infrastructure.
- Revaluation opportunity: Combined entity will have diversified
production and cash flow, a strong balance sheet and substantial
prospects for significant growth driven by a proven management team,
which creates the opportunity for a rerating more in line with other
mid-tier gold producers.
George Ogilvie, president and chief executive officer of Kirkland Lake, stated: "This transaction adds high-quality assets and ounces to our existing operations and is immediately accretive to our production, net asset value and cash flow on a per share basis. With this acquisition, we continue to focus on gold production in proven and safe mining jurisdictions. We believe this creates both financial and operational synergies which will contribute greatly to our continued success."
Duncan Middlemiss, president and CEO of St. Andrew, stated: "We are pleased to be combining with another established producer to create a leading intermediate gold producer focused in Canada. St. Andrew shareholders will have the opportunity to benefit from the promising potential of the combined company, with greater trading liquidity and capital markets exposure to drive shareholder value. Both St. Andrew Goldfields and Kirkland Lake Gold are pleased to bring forth a consolidated Abitibi-focused company, as we all believe in the huge potential of our assets."
Benefits to Kirkland Lake shareholders
The acquisition is accretive to Kirkland Lake shareholders based on net
asset value, production and cash flow per share.
- Over 50-per-cent increase in proven and probable gold reserves to a combined 2.3
million ounces of Au, and over 100-per-cent increase in measured and indicated gold resources,
supporting a long-term sustainable production profile.
- Production from four mines and two mills with expected production of 260,000 to 310,000 ounces in 2016.
- Exploration potential on the St. Andrew properties across 120 kilomtres of strike
length situated along the Porcupine-Destor fault zone.
Benefits to St. Andrew shareholders
Immediate premium to St. Andrew shareholders of 46 per cent based on the 20-day
volume-weighted average closing prices of both companies and a 25-per-cent
premium to St. Andrew's closing price on Nov. 16, 2015;
- Enhanced financial position with free cash flow from Kirkland Lake's
high-quality Macassa mine;
- Continuing exposure to St. Andrew's producing mines and exploration
portfolio through an all-share transaction;
- Exposure to financial and operational synergies of combining the two
- Significantly improved trading liquidity and capital markets exposure.
The transaction will be carried out by way of a court-approved plan of arrangement and will require the approval of at least 66-2/3 per cent of the votes cast by the shareholders of St. Andrew at a special meeting of St. Andrew shareholders expected to be held in January, 2016. The issuance of shares by Kirkland Lake under the arrangement is also subject to the approval of a majority of the votes cast by the shareholders of Kirkland Lake at a special meeting of Kirkland Lake shareholders expected to be held in January, 2016.
The directors and senior officers of St. Andrew, representing approximately 5 per cent of the outstanding St. Andrew common shares, have entered into support agreements pursuant to which they have agreed to vote in favour of the proposed transaction. Other shareholders of St. Andrew have entered into support agreements pursuant to which they have agreed to vote approximately 29 per cent of St. Andrew's outstanding shares in favour of the proposed transaction.
The directors and senior officers of Kirkland Lake, representing approximately 10 per cent of the outstanding Kirkland Lake common shares, have entered into support agreements pursuant to which they have agreed to vote both their Kirkland Lake Gold shares and their St. Andrew shares, if any, in favour of the proposed transaction.
In addition to the requisite shareholder and court approvals, the proposed transaction will be subject to applicable regulatory approvals and the satisfaction of certain other closing conditions customary for a transaction of this nature. The arrangement includes customary deal protections, including mutual covenants not to solicit other acquisition proposals, a right to match provision for Kirkland Lake, a reciprocal break fee payable in an amount of $7.1-million and a reciprocal expense reimbursement fee of $1.0-million payable by one party to the other party in certain circumstances if the transaction is not completed.
Both Kirkland Lake and St. Andrew have formed special committees of independent directors to review and approve the proposed transaction. Based on the respective recommendations of the special committees, the agreement has been unanimously approved by the boards of directors of each of Kirkland Lake and St. Andrew. Each of the Kirkland Lake and St. Andrew boards of directors will recommend that their respective shareholders vote in favour of the proposed transaction and have determined that the proposed transaction is in the best interest of their respective shareholders based on a number of factors, including fairness opinions received from their respective financial advisers. The special committee of independent directors of Kirkland Lake has received an opinion that based upon and subject to the assumptions, limitations and qualifications stated in such opinion, the consideration to be paid by Kirkland Lake pursuant to transaction is fair, from a financial point of view, to Kirkland Lake. The special committee of independent directors of St. Andrew has received an opinion that based upon and subject to the assumptions, limitations and qualifications stated in such opinion, the consideration to be received by St. Andrew shareholders pursuant to the transaction is fair, from a financial point of view to St. Andrew shareholders.
Upon completion of the transaction, one mutually acceptable nominee of St. Andrew will be appointed to the board of directors of Kirkland Lake, with the existing seven directors of Kirkland Lake continuing as directors.
Upon completion of the transaction, Kirkland Lake will have approximately 117.6 million common shares issued and outstanding.
Meeting materials with respect to the transaction are expected to be mailed to the respective shareholders of Kirkland Lake and St. Andrew in December, 2015, with closing of the transaction to occur as soon as reasonably practicable following the respective shareholder votes and receipt of regulatory and court approvals.
A copy of the agreement, the meeting materials and related documents will be filed under the SEDAR profile of both Kirkland Lake and St. Andrew at SEDAR's website.
Advisers and counsel
The financial and legal advisers to Kirkland Lake and its board of directors are Macquarie Capital Markets Canada Ltd. and Stikeman Elliott LLP, respectively. The financial adviser of the special committee of Kirkland Lake is CIBC World Markets Inc.
The financial and legal advisers to St. Andrew are BMO Capital Markets and McMillan LLP, respectively.
George Ogilvie, PEng, Christopher Stewart, PEng, and Stewart Carmichael, PGeo, of Kirkland Lake, are all qualified persons as defined under National Instrument 43-101. All of the scientific and technical disclosure contained in this news release regarding the Kirkland Lake project was reviewed and approved by Mr. Ogilvie, Mr. Stewart and Mr. Carmichael. As the chief executive officer, vice-president operations and manager of exploration of Kirkland Lake, respectively, neither Mr. Ogilvie, Mr. Stewart nor Mr. Carmichael are considered independent.
Duncan Middlemiss, PEng, Marc-Andre Pelletier, PEng, and Doug Cater, PGeo, of St. Andrew, are all qualified persons as defined under National Instrument 43-101. All of the scientific and technical disclosure contained in this news release regarding the St. Andrew properties was reviewed and approved by Mr. Middlemiss, Mr. Pelletier and Mr. Cater. As the chief executive officer, VP and general manager of operations and VP exploration of St. Andrew, respectively, neither Mr. Middlemiss, Mr. Pelletier nor Mr. Cater are considered independent.
Conference call and webcast
Kirkland Lake and St. Andrew will host a joint conference call on Tuesday, Nov. 17, 2015, at 8:30 a.m. Eastern Standard Time. You are invited to participate via teleconference using the details below. Participants may also join the call via webcast on-line. A playback of the conference call will be available via the website and will be posted within 24 hours of the call.
Participant dial-in numbers:
Toll-free North America: 1-888-886-7786
Toll-free United Kingdom: 0-800-652-2435
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