07:24:08 EDT Thu 28 Mar 2024
Enter Symbol
or Name
USA
CA



Thompson Creek Metals Company Inc
Symbol TCM
Shares Issued 222,475,350
Close 2016-07-05 C$ 0.64
Market Cap C$ 142,384,224
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Centerra Gold to acquire Thompson Creek Metals Company

2016-07-05 16:02 ET - News Release

See News Release (C-CG) Centerra Gold Inc

Mr. Scott Perry of Centerra Gold reports

CENTERRA GOLD AND THOMPSON CREEK ANNOUNCE TRANSFORMATIONAL BUSINESS COMBINATION

Centerra Gold Inc. and Thompson Creek Metals Company Inc. have entered into a definitive arrangement agreement whereby Centerra will acquire all of the issued and outstanding common shares of Thompson Creek. In connection with the closing of the arrangement, Centerra will redeem all of Thompson Creek's secured and unsecured notes at their call price plus accrued and unpaid interest, in accordance with their terms. Under the terms of the arrangement agreement, all of the Thompson Creek issued and outstanding common shares will be exchanged on the basis of 0.0988 of a Centerra common share for each Thompson Creek common share. Upon completion of the arrangement, existing Centerra and Thompson Creek shareholders are expected to own approximately 92 per cent and 8 per cent, respectively, of the pro forma company.

The exchange ratio implies consideration of 79 cents per Thompson Creek common share, based on the closing price of Centerra common shares on the Toronto Stock Exchange on July 4, 2016, representing a 32-per-cent premium to the closing price of Thompson Creek common shares on the TSX on July 4, 2016. The exchange ratio implies a premium of 33 per cent to Thompson Creek common shares, based on each company's 20-day volume-weighted average price on the TSX for the period ending July 4, 2016. Total transaction value, including the assumption of capital lease obligations, is equal to approximately $1.1-billion (U.S.).

In connection with the proposed transactions, Centerra has entered into a binding commitment letter with Royal Gold Inc. whereby, upon the closing of the arrangement, Royal Gold's 52.25-per-cent gold streaming interest at Mount Milligan will be amended to a 35-per-cent gold stream and 18.75-per-cent copper stream. The transfer payment on the gold stream will remain at $435 (U.S.) per ounce, while the new copper stream will have a transfer payment equal to 15 per cent of the prevailing market price of copper. Based on the midpoint of Thompson Creek's 2016 production guidance (240,000 ounces to 270,000 ounces of payable gold and 55 million pounds to 65 million pounds of payable copper), Mount Milligan's revenue split to Centerra under the amended stream agreement is expected to be approximately 70 per cent gold and 30 per cent copper at current spot prices of $1,351 (U.S.) per ounce gold and $2.21 (U.S.) per pound copper.

Thompson Creek operates the world-class Mount Milligan mine in British Columbia, Canada, a premier low-cost asset with more than two additional decades of profitable production expected from the current reserve base. Together with Centerra's low-cost, long-lived Kumtor mine in the Kyrgyz Republic, the combined company is expected to be firmly established as a low-cost gold producer with a geographically diversified footprint and industry-leading margins. In addition, the combined company will possess a high-quality pipeline of development opportunities, and is well positioned to sustain and grow its production base. With a strong balance sheet and liquidity profile, sector-leading operating margins, and moderate capital requirements, the combined company is expected to continue to generate robust free cash flows for many years to come.

Highlights of the transaction:

  • Enhances Centerra's current high-quality producing platform with a balanced geopolitical risk profile: Mount Milligan adds a North American cornerstone asset that could significantly increase Centerra's production, reserves and resources, and cash flow. With Mount Milligan and Kumtor, the combined company will have a high-quality diversified producing platform with a balanced geopolitical risk profile.
  • Significant low-cost gold production: 2016 pro forma annual production of approximately 675,000 ounces to 725,000 ounces of gold at all-in sustaining costs (AISC) net of byproduct credits of $850 (U.S.) to $925 (U.S.) per ounce.
  • High-quality growth project pipeline: Growth to be driven by various projects including the fully financed Oksut project in Turkey, Gatsuurt in Mongolia and Greenstone in Canada, which could drive incremental gold production of approximately 500,000. By 2018, up to half of production is expected to come from Canada, Turkey and Mongolia. The Berg and IKE development projects are copper, molybdenum and silver exploration properties located in British Columbia. Both are longer-term strategic growth projects with minimal and flexible capital commitments over the next several years.
  • Maximized gold exposure: Amendment of Royal Gold's gold stream from 52.25 per cent to 35 per cent, in exchange for a 18.75-per-cent copper stream, repositions Mount Milligan as a world-class gold mine with low pro forma 2016 AISC of $775 (U.S.) to $850 (U.S.) per ounce, and an approximate revenue split of 70 per cent gold and 30 per cent copper at current metal prices. As well, there exists the potential for a rerating of the pro forma company's trading multiple in line with gold producer peers.
  • Attractive acquisition return profile: The transaction is expected to be accretive to cash flow, net asset value (NAV), reserves and production per share with strong acquisition internal rate of return (IRR) and payback.
  • Strong balance sheet and financial performance: Strong earnings before interest, taxes, depreciation and amortization (EBITDA) and free cash-flow generation provide Centerra with financial strength and flexibility, with an estimated pro forma debt to EBITDA of approximately 0.8 times.
  • Potential upside opportunities: The addition of secondary crushing at the Mount Milligan mine by year-end 2016, as planned, is expected to increase throughput to more than 62,500 tonnes per day. An expansion of the flotation circuit, with the addition of regrind capacity, is expected to improve gold and copper recoveries beyond what has been experienced to date. The development of a geo-metallurgical model is expected to enable the operators to better manage the material to the mill resulting in more efficient mill operations, better predictability, and improved gold and copper recoveries. Furthermore, the transaction positions Centerra to realize synergies in Canada, as well as potentially enabling the utilization of tax benefits.
  • Optionality retained in molybdenum assets: The Endako and Thompson Creek mines will be kept on care and maintenance, and the Thompson Creek mill will continue to be used as a concentrate upgrade facility. The Langeloth processing facility is expected to operate as a profitable toll processing facility. The molybdenum business is expected to operate on a cash-flow-neutral basis and represents significant potential value upside in the future.

Scott Perry, chief executive officer of Centerra, said: "The combination with Thompson Creek is a highly compelling transformative transaction that diversifies Centerra's operating platform and adds low-risk production and cash flow from a very high-quality, long-lived asset in Mount Milligan. The acquisition will establish an operating base in Canada -- one of the lowest-risk mining jurisdictions in the world -- which will complement our Canadian-based Greenstone project and provide for further flexibility to expand into the Americas. Furthermore, the amendment to the Royal Gold stream repositions the asset by maximizing gold exposure for our shareholders. This business combination is complementary in nature, combining Centerra's robust balance sheet with Thompson Creek's high-quality asset base."

Jacques Perron, president and CEO of Thompson Creek, stated: "Following a formal strategic review process and the evaluation of numerous strategic alternatives to address Thompson Creek's upcoming debt maturities, I am pleased to announce the business combination of Thompson Creek with Centerra. We believe the combination with Centerra represents a unique opportunity for our shareholders to gain exposure to additional high-quality assets with a strong development pipeline. While we believe this transaction delivers our shareholders an attractive premium today, it also delivers our shareholders with significant value generation opportunities going forward."

"Royal Gold congratulates Thompson Creek for developing Mount Milligan into a world-class asset," Tony Jensen, president and CEO of Royal Gold, said. "Looking forward, we welcome Centerra as our new partner at Mount Milligan, and we are pleased that a strong management and operating team will continue to lead the operations at the mine."

Benefits to Centerra shareholders:

  • Establishes a complementary cornerstone, producing and profitable asset in Canada with well-established, low-cost operations, and a talented and focused operating team;
  • Adds a world-class long-lived mine with high-margin gold production;
  • Expected to provide strong return metrics, cash-flow accretion and an enhanced ability to generate free cash flow on a per-share basis;
  • Anticipated increased trading liquidity, enhanced value proposition and capital markets profile;
  • Positioning Mount Milligan as a low-cost gold mine as a result of the amendment to the Royal Gold stream arrangement provides potential for a multiple rerating in line with gold peers.

Benefits to Thompson Creek shareholders:

  • Provides a comprehensive solution for Thompson Creek's capital structure and delivers an immediate up-front premium while maintaining meaningful equity participation in a pro forma company with a strong balance sheet;
  • Superior financial strength and flexibility to support advancement of various development projects underpinning high-quality gold production growth;
  • Exposure to a large, long-life reserve base through Centerra's world-class Kumtor mine;
  • Access to a peer-leading dividend policy.

Board of directors' recommendations

The arrangement agreement has been approved by the board of directors of each of Centerra and Thompson Creek. The Thompson Creek board recommends that Thompson Creek shareholders vote in favour of the arrangement. BMO Capital Markets has provided an opinion to the board of directors of Thompson Creek, stating that in its opinion, and based upon and subject to the assumptions, limitations and qualifications set forth therein, the exchange ratio pursuant to the arrangement is fair, from a financial point of view, to the Thompson Creek shareholders.

Transaction summary

The proposed business combination will be effected by way of a plan of arrangement completed under the Business Corporations Act (British Columbia). The arrangement will require approval by 66-2/3rds per cent of the votes cast at a special meeting of Thompson Creek shareholders. In addition to shareholder and court approvals, the arrangement is subject to applicable regulatory approvals and the satisfaction of certain other closing conditions customary in transactions of this nature.

The arrangement agreement includes customary provisions, including non-solicitation provisions, including a $35-million (U.S.) termination fee payable to Centerra under certain customary circumstances.

Transaction financing

The proposed redemption of Thompson Creek's 9.75-per-cent secured notes due in 2017, the 7.375-per-cent unsecured notes due in 2018 and the 12.5-per-cent unsecured notes due in 2019 is expected to be financed with a combination of a new $325-million (U.S.) senior secured revolver and term loan facility provided by Scotiabank, a $170-million bought deal subscription receipt offering, which has been announced today by way of a separate press release, and cash on hand at Centerra and Thompson Creek.

Timing

Full details of the proposed transactions will be included in Thompson Creek's proxy statement and information circular, which is expected to be mailed to shareholders in August, 2016. It is anticipated that the Thompson Creek shareholder meeting and closing of the proposed transactions will take place in the fall of 2016.

Advisers and counsel

Credit Suisse Securities (Canada) Inc. acted as financial adviser to Centerra, and Stikeman Elliott LLP, Weil, Gotshal & Manges LLP and Holland & Hart LLP acted as Centerra's legal advisers. Cormark Securities has provided a fairness opinion to the Centerra board of directors. BMO Capital Markets and Moelis & Company acted as financial advisers to Thompson Creek. BMO Capital Markets has provided a fairness opinion to the Thompson Creek board of directors. Cassels Brock & Blackwell LLP, Perkins Coie LLP and Gibson, Dunn & Crutcher LLP acted as Thompson Creek's legal advisers.

Conference call

Centerra and Thompson Creek will host a joint conference call on Tuesday, July 5, 2016, at 4 p.m. Eastern Time for members of the investment community to discuss the transaction. The call-in details are as follows:

Centerra Gold conference call:  4 p.m. ET to 4:30 p.m. ET on July 5, 2016

Dial-in:

International participants:  1-416-981-9073

North America participants:  1-800-675-8395

Postcall access:  1-416-626-4100 or 1-800-558-5253

Passcode:  21814353

The conference call will be available between July 5, 2016, at 5:30 p.m. ET until July 12, 2016, at 11:59 p.m.

A copy of the merger investor presentation is also available on the Centerra and Thompson Creek investor pages, respectively. An audio recording of the conference call will be made available shortly after the call on the Centerra and Thompson Creek investor pages.

Additional information and where to find it

In connection with the proposed transactions, Thompson Creek intends to file with the U.S. Securities and Exchange Commission a proxy statement in respect of the meeting of its shareholders to approve the arrangement, and other relevant documents to be mailed by Thompson Creek to its shareholders in connection with the arrangement. Thompson Creek's proxy statement will also be filed with the Canadian securities regulators. The company urges investors and security holders to read the proxy statement and any other relevant documents when they become available, because they will contain important information about Thompson Creek, Centerra and the proposed transactions. Investors and security holders will be able to obtain these materials (when they are available) and other documents filed with the SEC and the Canadian securities regulators free of charge on the SEC website and on SEDAR. In addition, a copy of Thompson Creek's proxy statement (when it becomes available) may be obtained free of charge from Thompson Creek's investor relations website. Investors and security holders may also read and copy any reports, statements and other information filed by Thompson Creek, with the SEC, at the SEC public reference room at 100 F St. N.E., Washington, D.C., 20549. Please call the SEC at 1-800-732-0330 or visit the SEC website for further information on its public reference room.

Participants in the solicitation of votes

Thompson Creek and its directors, executive officers, and certain other members of management and employees may be deemed to be participants in the solicitation of proxies for its security holder approvals to be obtained for the transaction. Information regarding Thompson Creek's directors and executive officers is available in its proxy statement filed with the SEC by Thompson Creek on May 25, 2016, in connection with its 2016 annual meeting of shareholders. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement, and other relevant materials to be filed with the SEC and the Canadian securities regulators when they become available.

Centerra qualified person and quality assurance/quality control

All production information and other scientific and technical information in this news release with respect to Centerra and its assets were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101, standards of disclosure for mineral projects, and were prepared, reviewed, verified and compiled by Centerra's geological and mining staff under the supervision of Gordon Reid, professional engineer, and Centerra's vice-president and chief operating officer, who is the qualified person for the purpose of NI 43-101. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during the exploration drilling programs are done consistent with industry standards and independent certified assay labs.

Thompson Creek qualified person and QA/QC

All production information and other scientific and technical information in this news release with respect to Thompson Creek and its assets were prepared in accordance with the standards of the Canadian Institute of Mining, Metallurgy and Petroleum and National Instrument 43-101, standards of disclosure for mineral projects, and were prepared, reviewed, verified and compiled by Thompson Creek's geological and mining staff under the supervision of Robert Clifford, director of mine engineering at Thompson Creek, a qualified person under NI 43-101. Sample preparation, analytical techniques, laboratories used and quality assurance-quality control protocols used during the exploration drilling programs are done consistent with industry standards and independent certified assay lab.

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