KL Gold, St. Andrew Goldfields tie knot
Synergy sprouts in fertile gold fields
Kirkland Lake’s Mile of Gold is about to get longer – about 120 kilometres longer.
That’s the strike length of the new land package acquired by Kirkland Lake Gold Inc., owner of four past-producing mines and the operating Macassa Mine, all on the Mile of Gold, a rich stretch of geology where seven mines have produced more than 25 million ounces of gold.
In a friendly takeover, Kirkland Lake Gold acquired St. Andrew Goldfields Ltd. with its three gold mines, a mill and extensive land holdings straddling the Porcupine-Destor Fault, about 70 kilometres north of Kirkland Lake. That massive northern land package may hold untapped riches for the newly amalgamated company.
St. Andrew, which hired 60 additional people to bring its new Taylor gold mine near Matheson into commercial production in late 2015, had not invested a lot of money in a regional brownfield or greenfield exploration program on its properties, said George Ogilvie, president and CEO of Kirkland Lake Gold.
“I think with a stronger consolidated company generating some significant free cash over time, we’re going to be able to start identifying exploration targets within the current St. Andrew land package that we’re going to be able to start exploring.”
Exploration has been breathing new life into the Macassa Mine, where the discovery of a new high-grade gold zone, known as the South Mine Complex, is expected to add millions more ounces to reserves.
The larger land position acquired by Kirkland Lake Gold is but one facet of the $178-million, all-share acquisition to benefit both mining operations.
Combining production from its Taylor Mine with 90,000 to 95,000 ounces of gold from its Holt and Holloway mines, St. Andrew pegged 2015 gold production at 100,000 to 110,000 ounces. In 2016, its gold output could reach 140,000 ounces. Merged with Kirkland Lake Gold with its annual production of more than 150,000 ounces, the new company could pour between 260,000 and 310,000 ounces annually from four mines and two mills at a cash cost of between US$600-690 an ounce. Proven and probable reserves would climb by more than 50 per cent to 2.3 million ounces.
For years, the investment community and some shareholders have been calling for companies with single, producing mines in the Northern Abitibi Greenstone Belt to consolidate, Ogilvie said. “We’re generally being applauded for making the first move.”
The takeover offered St. Andrew shareholders one Kirkland Lake Gold share for every 11 shares of St. Andrew, a premium of 25 per cent, based on the Nov. 16, 2015 closing price of the stock on the Toronto Stock Exchange. Other benefits include greater liquidity and the ability to sell shares at a desirable price for those invested in St. Andrew, where much of the share capital – up to 48 per cent – had been held by one asset management fund. For Kirkland Lake Gold, where 70 to 80 per cent of the share capital had been held by institutions, it will mean more retail shareholders in the new company. “To me, that’s a win-win,” said Ogilvie.
The new company will have about 118 million common shares issued and outstanding with potential gold production of about 300,000 ounces. “We felt if investors looked at that it would look extremely attractive,” Ogilvie said.
He predicts initial synergies to be realized at head office where duplication in executive positions will be eliminated. With economies of scale, the company aims to lower the cost of diesel, tires, explosives and ground support. The two mining operations will now be able to openly share information about those things they do well. “There’s a high possibility we’re going to be able to learn things from St. Andrew that are going to benefit our company and vice-versa,” Ogilvie said.
If both organizations are doing their jobs, he doesn’t foresee much labour rationalization. “If anything, I think with a stronger balance sheet and an ability to invest more in the operations, I can see more hiring taking place,” he said. “If we can find additional reserves and resources and increase our mining plan, then ultimately it’s going to mean that we’re going to have to hire more miners, more tradespeople, more technical people, more skilled managers.”
There may also be advantages for employees who live in Kirkland Lake and work in the Matheson area and for those who live in Timmins and Matheson who commute to work in Kirkland Lake. “Certainly we would give them the opportunity, over time, to put in a transfer request and look at bringing them into Kirkland Lake, provided there is a job opening for them there,” Ogilvie said. “If there were people from the Matheson-Timmins area working in Kirkland Lake, we would look at the other way as well.”
With about 1,250 employees, the new company will be one of Ontario’s largest mining employers.
The larger, stronger gold miner is expected to have more leverage when financing growth.
“If the company is looking for future investment and we have to involve banks or a syndication then they like to see companies that have multiple producing assets in safe jurisdictions and that usually means you can get better financing terms and your cost of capital actually goes down because your business is less of a risk,” Ogilvie said.