Kirkland Lake Gold has agreed to acquire Toronto’s Detour Gold, a gold producer, in a deal with an implied equity value of $4.9 billion. Detour was backed by Coast Capital Management LP and Livermore Partners.
November 25, 2019
TORONTO–(BUSINESS WIRE)–Kirkland Lake Gold Ltd. (“Kirkland Lake Gold”, the “Company” or “KL”) (TSX:KL) (NYSE:KL) (ASX:KLA) and Detour Gold Corporation (TSX: DGC) (“Detour Gold”) are pleased to announce that they have entered into a definitive agreement (the “Arrangement Agreement”) whereby Kirkland Lake Gold will acquire all of the issued and outstanding securities of Detour Gold pursuant to a plan of arrangement (the “Transaction”).
Under the terms of the Transaction, all of the issued and outstanding common shares of Detour Gold will be exchanged at a ratio of 0.4343 of a Kirkland Lake Gold common share for each Detour Gold common share. Upon completion of the Transaction, existing Kirkland Lake Gold and Detour Gold shareholders will own approximately 73% and 27% of the pro forma company, respectively.
The exchange ratio implies consideration of C$27.50 per Detour Gold common share based on the closing price of the Kirkland Lake Gold common shares on the Toronto Stock Exchange (“TSX”) on November 22, 2019, representing a 24% premium to the closing price of the Detour Gold shares on the TSX on November 22, 2019. Based on the 20-day volume weighted average price of the Kirkland Lake Gold shares and the Detour Gold shares on the TSX for the period ending November 22, 2019, the exchange ratio implies a premium of 29% to Detour Gold shareholders. The implied equity value of the Transaction is equal to approximately C$4.9 billion.
Adds a Long-Life, High-Quality Asset in a Low-Risk Jurisdiction: Detour Lake is a uniquely large-scale, long-life Canadian mine, with current production of ~600 koz per year and substantial growth potential.
Solidifies Kirkland Lake Gold’s Position as a Senior Gold Producer with Industry-Leading Free Cash Flow: Enhanced scale with pro forma 2019 production targeted at +1.5 Moz and analyst consensus 2019 free cash flow of almost US$700 million.
Bolsters Financial Strength and Capital Markets Profile: Combined net cash balance of US$630 million (as at September 30, 2019), with increased public float, liquidity, and access to capital, provides greater capacity to pursue further growth and return capital to shareholders.
Increases Kirkland Lake Gold’s Mineral Reserve Base and Complements Existing Operating Profile: Transaction adds 15.41 Moz to Kirkland Lake Gold’s mineral reserve base and extends reserve life index2 by 8 years.
Enables Value-Creation through Continued Optimization and Potential Expansion of Detour Lake: Financial strength and technical expertise of the combined company is expected to support the continued optimization and potential expansion of Detour Lake; opportunities exist to significantly increase production at improved unit costs and to expand current mineral reserves and mineral resources.
Provides Attractive Exploration Upside: Detour Gold’s land position covers 1,040 km2 along northernmost sections of the prolific Abitibi Greenstone Belt (including 646 km2 on existing Detour Lake property); combination of free cash flow generating operations, significant in-mine growth potential, and considerable regional exploration upside is a common feature among Detour Lake and Macassa in Canada and Fosterville in Australia.
Potential to Deliver Synergies: Expected pre-tax synergies of approximately US$75 – US$100 million per year.
Tony Makuch, President and Chief Executive Officer of Kirkland Lake Gold, commented: “The acquisition of Detour Gold is an excellent fit for Kirkland Lake Gold. We have already taken two mining operations, Macassa and Fosterville, and transformed them into high-quality assets that generate industry-leading earnings and free cash flow. The addition of Detour Lake provides an opportunity to add a third cornerstone asset that is located in our back yard in Northern Ontario. Detour Lake will provide the pro forma company with a 20-plus year mine life which provides unparalleled optionality and excellent growth potential for the benefit of all shareholders. The management team at Detour Gold has done an exceptional job in making improvements and building momentum at the mine. Once the Transaction is completed, we will continue efforts to optimize current operations and commence engineering work to evaluate expansion opportunities at Detour Lake, which we anticipate could lead to significant production growth, improved unit costs and higher levels of mineral reserves and mineral resources.
“Turning to exploration, we are planning extensive drilling at highly prospective exploration targets within the 1,040 km2 Detour Gold land position, where we believe there is considerable potential for new discoveries to support future mineral resource growth. The work we are planning around Detour Lake will be a key component of our corporate exploration program going forward. Other anticipated components of this program include ongoing drilling at Macassa to grow the South Mine Complex and identifying high-grade gold zones along the Amalgamated Break, as well as continued extensive exploration at Fosterville and Northern Territory.
Mick McMullen, President and Chief Executive Officer of Detour Gold, commented: “This Transaction recognizes the improvements we have made to re-engineer Detour Gold’s operations and business practices, while providing our shareholders with an immediate premium and a unique opportunity to gain exposure to a diversified portfolio of low-cost, high-grade mines in prolific and low-risk mining jurisdictions. Our significant mineral resource base, exploration potential, and long-life production profile are a great addition to the Kirkland Lake Gold portfolio, and we are excited that we can share in the growth opportunities that exist going forward. Importantly, Kirkland Lake Gold’s strong balance sheet and cash generating capabilities will support additional investment in the exploration of Detour Lake to help unlock further growth potential.”
BENEFITS TO DETOUR GOLD SHAREHOLDERS
Provides an immediate and significant premium of 29% based on the 20-day volume weighted average price of the Kirkland Lake Gold shares and Detour Gold shares on the TSX for the period ending November 22, 2019, and 24% to the closing price of the Detour Gold shares of C$22.21 per share on the TSX on November 22, 2019.
Diversifies portfolio and eliminates single asset risk, while maintaining exposure to Detour Lake and provides opportunity to participate in future upside through Kirkland Lake Gold’s continued optimization, and potential expansion, of Detour Lake, and its plan to extensively explore the 1,040 km2 Detour Gold land position.
Provides exposure to Kirkland Lake Gold’s high-quality portfolio of low-cost, high-grade mines, in low-risk jurisdictions with further upside from district-scale exploration potential and organic mineral reserve growth.
Significantly enhances financial strength, free cash flow generation, and trading liquidity for Detour Gold shareholders.
Allows Detour Gold shareholders to participate in Kirkland Lake Gold’s capital return program, including its attractive quarterly dividend, currently set at US$0.06 per share, and its ongoing normal course issuer bid.
Participation in the potential synergies identified by Kirkland Lake Gold.
BENEFITS TO KIRKLAND LAKE GOLD SHAREHOLDERS
Addition of a third cornerstone asset with ~600 koz current production and potential for significant growth.
Enhances financial strength with combined net cash of US$630 million (as at September 30, 2019), and analyst consensus 2019 free cash flow of almost US$700 million from assets in Australia and Canada.
Grows mineral reserves via addition of 15.41 Moz to mineral reserves base, while growing mineral reserve life index2 by 8 years.
Opportunity for value creation through continued optimization and expansion of current production, mineral reserves and mineral resources, and mine life at Detour Lake.
Provides attractive exploration upside from highly prospective targets on the 1,040 km2 Detour Gold land position within the prolific Abitibi Greenstone Belt.
Expected to deliver immediate cash flow per share and net asset value per share accretion.
Potential to realize expected pre-tax synergies of approximately US$75 – US$100 million per year.
The Transaction will be effected by way of a court-approved plan of arrangement under the Canada Business Corporations Act, requiring the approval of at least 66 2/3% of the votes cast by the shareholders of Detour Gold voting in person or represented by proxy at a special shareholders’ meeting to consider the Transaction. The issuance of shares by Kirkland Lake Gold in connection with the Transaction is subject to the approval of a majority of the votes cast by the shareholders of Kirkland Lake Gold voting in person or represented by proxy at a special shareholders’ meeting.
Officers and directors of Kirkland Lake Gold have entered into voting support agreements pursuant to which they have agreed, among other things, to vote their Kirkland Lake Gold shares in favour of the Transaction. Officers and directors of Detour Gold have entered into voting support agreements pursuant to which they have agreed, among other things, to vote their Detour Gold shares in favour of the Transaction.
In addition to shareholder and court approvals, the Transaction is subject to applicable regulatory approvals including, but not limited to, TSX approval and approval under the Competition Act (Canada) and the satisfaction of certain other closing conditions customary in transactions of this nature. The Arrangement Agreement contains customary provisions including reciprocal non-solicitation, “fiduciary out” and “right to match” provisions, as well as a US$148 million termination fee payable to Kirkland Lake Gold under certain circumstances and a US$202 million termination fee payable to Detour Gold under certain circumstances.
Upon completion of the Transaction, management of the combined company will feature proven and experienced mining and business leaders at both the Board of Directors and executive team levels, along with diverse, high-performing teams at the combined company’s regional and operating sites. Full details of the Transaction will be included in the respective management information circulars of Kirkland Lake Gold and Detour Gold, expected to be mailed to shareholders in December 2019. Both shareholder meetings and closing of the Transaction are expected by the end of January 2020.
BOARDS OF DIRECTORS’ RECOMMENDATIONS
The Arrangement Agreement has been unanimously approved by the Board of Directors of each of Kirkland Lake Gold and Detour Gold, including, in the case of Detour Gold, following the unanimous recommendation of a special committee of independent directors of Detour Gold. Both Boards of Directors unanimously recommend that their respective shareholders vote in favour of the Transaction.
RBC Capital Markets has provided a fairness opinion to the Board of Directors of Kirkland Lake Gold stating that, as of the date of such opinion, and based upon and subject to the assumptions, limitations and qualifications stated in such opinion, the consideration to be paid under the Transaction is fair, from a financial point of view, to Kirkland Lake Gold.
Each of BMO Capital Markets and Citi provided the Detour Gold special committee and Board of Directors with an opinion, dated November 24, 2019, to the effect that, as of the date of such opinion, the consideration provided for in the Transaction was fair, from a financial point of view to holders of Detour Gold common shares (other than, as applicable, Kirkland Lake Gold and its affiliates), in each case, based upon and subject to the respective assumptions, limitations, qualifications and other matters set forth in such opinions.
None of the securities to be issued pursuant to the Transaction have been or will be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), or any state securities laws, and any securities issuable in the Transaction are anticipated to be issued in reliance upon available exemptions from such registration requirements pursuant to Section 3(a)(10) of the U.S. Securities Act and applicable exemptions under state securities laws. This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities.
ADVISORS AND COUNSEL
RBC Capital Markets is acting as financial advisor to Kirkland Lake Gold and Cassels Brock & Blackwell LLP and Dorsey Whitney LLP are acting as Kirkland Lake Gold’s legal advisors.
BMO Capital Markets is acting as financial advisor to Detour Gold in connection with the Transaction. Citi has acted as financial advisor to the Detour Gold special committee in connection with the Transaction. Stikeman Elliott LLP, Jones Day and Squire Patton Boggs are acting as Detour Gold’s legal advisors.
Kirkland Lake Gold and Detour Gold will host a joint conference call today, Monday, November 25, 2019, at 8:30 am ET, for members of the investment community to discuss the Transaction. Call-in information is provided below. The call will also be webcast and accessible on the Kirkland Lake Gold and Detour Gold websites at www.klgold.com and www.detourgold.com, respectively.
Monday, November 25, 2019
CONFERENCE ID: 9195953
8:30 AM ET
A copy of the investor presentation is also available, and an audio recording of the conference call will be made available shortly after the call, on the Kirkland Lake Gold and Detour Gold websites.
About Kirkland Lake Gold Ltd.
Kirkland Lake Gold Ltd. is a growing gold producer operating in Canada and Australia that produced 723,701 ounces in 2018 and is on track to achieve significant production growth over the next three years, including target production of 950,000 – 1,000,000 ounces in 2019, 930,000 – 1,010,000 ounces in 2020 and 995,000 – 1,055,000 ounces in 2021. The production profile of the Company is anchored by two high-grade, low-cost operations, including the Macassa Mine located in Northern Ontario and the Fosterville Mine located in the state of Victoria, Australia. Kirkland Lake Gold‘s solid base of quality assets is complemented by district scale exploration potential, supported by a strong financial position with extensive management and operational expertise. The Company’s shares trade on the Toronto, New York and Australian Stock Exchanges under the trading symbol KL.
About Detour Gold Corporation
Detour Gold is a mid-tier gold producer in Canada that holds a 100% interest in Detour Lake, a long-life, large-scale open pit operation. Detour Gold’s shares trade on the Toronto Stock Exchange under the trading symbol DGC.
The Toronto Stock Exchange has neither reviewed nor accepts responsibility for the adequacy or accuracy of this news release.
Kirkland Lake Gold Qualified Person
The scientific and technical content of this news release with respect to Kirkland Lake Gold and its assets was reviewed, approved and verified by Natasha Vaz, Vice President, Technical Services, a Qualified Person as defined in National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”).
Detour Gold Qualified Person
The scientific and technical content of this news release with respect to Detour Gold and its assets was reviewed, verified and approved by David Londono, Mine General Manager, a Qualified Person as defined by NI 43-101.
Additional 15.4 Moz mineral reserves includes proven mineral reserves of 3.4 million ounces (85.2 million tonnes at an average grade of 1.24 grams per tonne) and probable mineral reserves of 12.1 million ounces (413.2 million tonnes at an average grade of 0.91 grams per tonne) as of December 31, 2018, as set out below (See Detour Gold’s news release dated March 7, 2019).
Detour Gold’s mineral reserve statement is classified in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”) “CIM Definition Standards – For Mineral Resources and Mineral Reserves” adopted by the CIM Council (as amended, the “CIM Definition Standards”) in accordance with the requirements of National Instrument 43-101 “Standards of Disclosure for Mineral Projects” (“NI 43-101”). Mineral reserve estimates reflect the Company’s reasonable expectation that all necessary permits and approvals will be obtained and maintained.
Mineral reserves were estimated using a gold price of US$1,000/oz and mineral resources were estimated using a gold price of US$1,200/oz at a $US/$CDN exchange rate of 1.10.
Mineral reserves were based on a cut-off grade of 0.50 g/t Au.
LG Fines (sourced from material grading 0.40-0.50 g/t Au) classified as Measured and Indicated were reported as Probable mineral reserves and included in the mine plan. LG Fines, reported above, also included 1.7 Mt averaging 0.45 g/t Au.
High grade gold assays were capped at values ranging from 20 to 120 g/t Au depending on the domain.
Interpolation completed using 2 metre composites. The block grade estimate used 1-pass nearest neighbor (NN) and 4-pass Inverse Distance Cubed (ID3) interpolation method. Block model uses block sizes of 5 x 3 x 5 metres.
Totals may not add due to rounding.
Reserve life index is calculated as contained gold mineral reserves divided by the midpoint of 2019E production guidance (see Kirkland Lake Gold News Release dated November 6, 2019).