Monday, December 16, 2013

P/BRD – Primero to Acquire Brigus Gold in All-Stock Deal to Become Meaningful Mid-Tier Gold Producer

Brigus Gold operates the Black Fox mine in Ontario which is expected to produce +100,000 ounces of gold this year (Brigus Gold)
Brigus Gold operates the Black Fox mine in Ontario which is expected to produce +100,000 ounces of gold this year (Brigus Gold)

Joseph Conway’s Primero Mining (P:TSX) announced this morning it has entered into a agreement to acquire Brigus Gold (BRD:TSX) in an all-share transaction.  Primero will use their stock, which has held its own this year, in an exchange ration of 0.175:1.  This values Brigus at approximately $220 million.  This bid represents a 43% premium to their 20-day VWAP and over $90 per ounce which is on par with recent gold producer transactions.  Once the arrangement is completed, Brigus shareholders will own 26.6% of Primero with existing Primero holders having the rest.  Goldcorp (G:TSX), which owns 27% of Primero shares has agreed to vote in favour of this deal.
Brigus shareholders will also get 0.1 shares for each Brigus share of a newly formed SpinCo which will hold Brigus’ interests in the Goldfields project and the Ixhuatan and Huizopa projects in Mexico.  The SpinCo will also get a $10 million injection of capital to get started.  Brigus shareholders will own 90.1% of the SpinCo with Primero holding the remaining 9.9%.
“This acquisition is immediately accretive to our production and cash flow,” stated Joseph Conway, President and CEO. “We believe that with further investment, the Black Fox mine will grow and continue to create significant value for shareholders. Primero also has the financial and management resources necessary to advance the adjacent Grey Fox project at the same time as developing the Cerro del Gallo project in Mexico.”
Brigus operates the Black Fox mine in Timmins Ontario which is expected to produce over 100,000 ounces of gold this year at $700 per ounce cash costs and $1,100 per ounce all-in cost.  Brigus has been reducing its capital spending at the Black Fox mine, but now, it seems, Black Fox will see more investment capital put into it from Conway’s treasury.  Brigus also owns the Grey Fox project which is adjacent to the Black Fox mine and hosts over 500,000 ounces of gold.  They also own the Goldfields project in northern Saskatchewan which hosts of 1 million ounces of 2P reserves.

Primero will almost double their current production profile with this transaction (Primero Mining)

Primero’s production profile will see a meaningful increase from the current 150,000 ounces per year to over 250,000 ounces per year.  Primero produces from the San Dimas mine in Mexico.  Although costs at Black Fox are higher than Primero’s other projects, with more investment into the mine, costs could come down.  If Primero gives Cerro del Gallo the go ahead for construction then they could start producing nearly 300,000 ounces per year by 2016, according to the company.  However, with the addition of the Black Fox production, Primero should be able to achieve 300,000 ounces of production by next year, with that growing to over 400,000 ounces by 2016.  This puts Conway’s company in the mid-tier category which earns Primero points and allows the company to grow cash flow substantially.

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