Tuesday, January 24, 2017

Eric Sprott 'driving the bus' on Kirkland Newmarket merger

Kirkland Lake Gold (KLG.TO) has agreed to join forces with Newmarket Gold (NMI.TO) in an all-stock deal worth about $1 billion.

Retail and institutional investors are likely to take a shine to both the deal and the new gold company, according to Andrew McCreath, BNN Markets Commentator and founder of Forge First Asset Management.

“This is a deal that is trying to make a stock more interesting to more shareholders … and also to lower the cost of production of the combined entity with a higher production base,” he said on Thursday.

Kirkland Lake Gold shares will be exchanged at a ratio of 2.1053 Newmarket shares per Kirkland share, the companies announced in a press release. Once the deal closes, Newmarket shareholders will receive 0.475 shares of the combined company for each share held. Kirkland’s shareholders will emerge with 57% ownership of the merged company. The transaction is expected to close in the fourth quarter of this year, pending approvals.

Newmarket Gold has been on an aggressive expansion spree with the help of Eric Sprott – the noted gold bug. Sprott holds more than nine per cent of Newmarket’s shares and is also the chairman of Kirkland Lake Gold. “Clearly, Eric Sprott is driving the bus on making this transaction work,” said McCreath.

Newmarket CEO Douglas Forster has been trying to build the company into a mid-tier gold producer for the past year. Shares of Newmarket are up more than 250 per cent over the past year – that surge will likely dissuade another company from trying to make a competing bid for the company, according to McCreath, who thinks the popularity of the stock will likely make the deal appealing for traders. “I think this will be a nice little feast day for the merger arb funds out there that like these kind of deals.”

The higher production and lower cost profile will also make the deal appealing to a broader share of gold investors, added McCreath, whose Forge First doesn’t hold shares in either of the merging companies.

The new company will have total gold production of about 500,000 ounces per year from Kirkland’s flagship Macassa Mine in Northern Ontario as well as the Holt, Holloway and Taylor gold mines – all in northeastern Ontario. Newmarket currently operates three gold mines in Australia.

“Macassa is not exactly an easy mine,” McCreath pointed out. “There’s probably not a lot of upside unless gold goes way the heck up from here.”

- Source, BNN