Gold bars.LISI NIESNER/Reuters
All-stock takeover deals are creeping back into the Canadian gold industry.
Argonaut Gold Inc., a Toronto-listed miner with assets in Mexico, announced a deal on Monday to acquire Prodigy Gold Inc. for $341-million in shares.
It was the latest in a string of bite-sized deals by miners who are eyeing growth after a year when an uncertain economic outlook dampened appetite for mergers and acquisitions.
"After a very boring summer and a fairly painful year in the precious metals equity space, we've seen upside momentum return to both the metals and the equities and so, I think we'll see more of these deals get done," said Christos Doulis, an analyst with Stonecap Securities Inc. in Toronto who follows Argonaut Gold.
In early September, B2Gold Corp. announced a $1.1-billion deal to acquire CGA Mining Ltd., owner of the largest operating gold project in the Philippines. The all-stock deal was only a fraction the size of others in the Canadian gold sector in past years, but it dwarfed the average deal size in the year-to-date of less than $50 million.
Deal-making is returning to the gold sector as producing miners bet on a stronger price outlook and take advantage of stock market valuations that have risen much faster than those of exploration companies in recent months.
Argonaut Gold shares were off nearly 8 per cent on Monday, closing at $9.65. In contrast, shares of Prodigy jumped nearly 50 per cent to 98 cents after the deal was announced but are worth only 8 per cent more than they were in January.
"So if you're a mid-tier mining company with current production and you've seen a 30- to 40-per-cent bump in your stock since the summer while the juniors have only jumped 20 per cent or so, perhaps it is a good time to think about using your paper to do a deal before the junior equities play catch-up," said Mr. Doulis.
The Prodigy acquisition will add the Magino gold project in northern Ontario to Argonaut's fast-growing portfolio, and help drive it toward a long-stated goal of becoming a mid-tier producer of more than 500,000 ounces of gold per year.
Other recent deals between Canadian listed companies include Endeavour Mining Corp.'s deal to acquire Avion Gold Corporation's $389-million in stock as it builds out gold mining assets in West Africa.
By paying in stock, both Argonaut and Endeavour could offer shareholders of targets the promise of future growth. Prodigy shareholders will own 22 per cent of the new Argonaut Gold and Avion shareholders are to make up about 40 per cent of the enlarged Endeavour Mining.
"I couldn't have got the deal any other way," said Endeavour chief executive officer Neil Woodyer, who says he had his eye on Avion for some time but could not afford it before a coup in Mali helped cut the share price by more than 70 per cent, to lows of about 50 cents a share from $1.81 a share. "We saw good assets badly valued and suffering from financial problems that were not the fault of the assets. We were opportunistic."
Mr. Woodyer predicted there could be some more opportunistic buying by miners operating in West Africa and other regions.
"I think the window is still open. I don't think the bank markets or the equity markets are able to finance and therefore I think consolidation is inevitable," he said.
The Avion acquisition, which is to close this week, will make Endeavour one of the largest gold producers in West Africa, with three mines and a fourth in construction.
Avion was trading at a market capitalization of above $1 billion as recently as February, and Endeavour acquired it for not even $400 million.
(Editor's note: An earlier online version of this story misstated the buyer of CGA Mining Ltd. This version has been corrected.)