The number of takeovers and acquisitions in the depressed junior mining space continue to increase as Canada’s small-cap resources sector trades near historic lows. First Mining Finance is a perfect example…
First Mining Finance pays up for Coastal Gold’s Hope Brook Project
First Mining Finance (FF:TSXV) roared to life in mid-June after it became apparent they would be acquiring Coast Gold Corp. (COD:TSXV) for its Hope Brook Gold Project located in southwestern Newfoundland. This morning the acquisition became official following an Ontario Superior Court of Justice ruling.
First Mining Finance – 3 Month Chart
One reason First Mining was potentially attracted to Coastal Gold was due to the high-grade nature of its Hope Brook Gold project. The company had recently announced a newly estimated high grade underground mineral resource of 5,500,000 tonnes grading 4.77 g Au/t containing 844,000 ounces gold in the indicated category and 836,000 tonnes grading 4.11 g Au/t containing 110,000 ounces gold in the inferred category.
With the costs associated with mining on the rise, companies are seeking out higher grade deposits in a bid to hedge themselves against further cost increases.
First Mining inks deal with Coastal Gold
On May 12th, First Mining Finance announced that it has entered into a definitive arrangement agreement with Coastal Gold Corp. under which First Mining will acquire all of the outstanding common shares of COD on the basis of 0.1625 common shares in the capital of First Mining for each COD common share by way of a plan of arrangement under the Business Corporations Act (Ontario). Below is an excerpt outlining the details and the value breakdown:
“The Transaction implies a value of $0.065 per COD common share and an overall equity value of $11.0 million, which represents a premium of:
- 333% to the unaffected COD common share price on February 27, 2015, the last trading day prior to the public announcement of the arrangement agreement made as of March 1, 2015 (the “Sulliden Agreement”) between COD and Sulliden Mining Capital Inc. (TSX:SMC) (“Sulliden”); and
- 62.5% to the current market price of the COD common shares.”
Click here to read the entire press release.
Keith Neumeyer, chairman of First Mining, commented:
“…We feel that COD’s Hope Brook Gold Project fits well into our overall portfolio strategy. We strongly believe that the combination of our company with COD will supplement our existing diverse asset portfolio and provide COD shareholders with exposure to a broad portfolio which is diversified across a number of minerals and geographic areas. We are confident that we can deliver on our growth plans to all First Mining and COD shareholders following completion of this acquisition.”
Click here to read the entire press release.
On May 17th we published a Weekly Volume titled Junior Mining Buyout Clues, which explores the various metrics surrounding a number of junior resource buyouts over the past 18 months, particularly in the junior gold sector. Below is a short excerpt:
“When it comes to the mining sector, the smartest money in the room belongs to senior producers. If this group of investors — and that is exactly what they are — sees value in distressed assets and is buying, there are deals to be had.”
Click here to read more.
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With metal prices depressed and sentiment the lowest it has been in decades towards junior miners, it has been a challenge for many to determine fair value. The 333% premium or $0.065 per share to the unaffected COD common share price on February 27, 2015, prior to the announcement of the arrangement agreement made as of March 1, 2015 between COD and Sulliden Mining Capital, is a far cry from Coastal Gold’s highs of 2011, 2012 or 2013.
Coastal Gold – 5 Year Chart
Junior mining companies, even with large defined assets, that in an otherwise healthy market would thrive, are in certain cases being sold for lack of resources to develop them in a timely fashion… or any fashion for that matter.
Coastal Gold is a not a typical TSX Venture junior mining issuer in that it defined a significant high grade resource. Sadly, its share price performance as witnessed by the chart above is relatively typical for similar junior resource companies with limited capital.
As mentioned above, Coastal Gold’s flagship property is the Hope Brook Gold Project located in southwestern Newfoundland. Coastal Gold’s newly estimated high grade underground mineral resource of 5,500,000 tonnes grading 4.77 g Au/t containing 844,000 ounces gold in the indicated category and 836,000 tonnes grading 4.11 g Au/t containing 110,000 ounces gold in the inferred category was enough to get First Mining to bid.
The overall equity value of $11.0 million was paid by First Mining for all of the outstanding shares of Coastal Gold. When you divide $11 million by the 954,000 ounces of gold, from the indicated and inferred categories at Hope Brook, it equates to roughly $11.53 per ounce in the ground.
Junior gold companies are being targeted as gold nears the 4 year anniversary from its all-time high hit in September of 2011. First Mining‘s acquisition of Coastal Gold is just another example of this and likely won’t be its last.
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