Agnico Eagle buying Kirkland Lake Gold in $13.4-billion deal

Agnico Eagle and Kirkland Lake Gold are merging to create a Canadian and global mining powerhouse.

The gold mining companies are framing this proposed $13.4-billion all-share acquisition by Agnico Eagle as creating a "merger of equals" to establish a "best-in-class gold mining company" built around each other's mining assets and the considerable exploration potential in the historic and fertile Abitibi Greenstone Belt in northeastern Ontario and northwestern Quebec.

Under the proposed new name of Agnico Eagle Mines Limited, the combined company will operate 12 mines in four countries, grouping Agnico's assets in Canada, Finland and Mexico with Kirkland Lake Gold's operation in Australia.

When the transaction closes in either December or the first quarter of 2022, Agnico Eagle and Kirkland Lake Gold shareholders will own 54 per cent and 46 per cent of the combined company, respectively.

The new company will have $2.3 billion in liquidity with a combined mineral reserve base of 48 million ounces of gold, expected year-end production of 3.4 million, and a treasury of $2.3 billion in available liquidity.

The arrangement will require the approval of at least 66 per cent of the votes cast by the shareholders of Kirkland Lake Gold, who will cast their vote at an upcoming special meeting. The issuance of shares by Agnico Eagle under the merger is subject to the approval of a simple majority of votes cast by Agnico Eagle shareholders.

Though Agnico Eagle gets top billing on the marquee, Kirkland Lake Gold CEO Tony Makuch doesn't view this tranaction as a takeover by Agnico Eagle, insisting there was never any intention to sell the company.

"Kirkland Gold was never for sale," said Makuch in a Sept. 28 webcall to analysts.

"We were never selling the company and we don't see this as being a sale. We see this is as a merger to create a new and stronger company."

Both Makuch and Agnico Eagle CEO Sean Boyd admitted this merger to consolidate operations had been two years in the making.

But Boyd said the merger wouldn't happen unless there were mutual benefits for both companies and it made sense in creating long-term value for shareholders based on the gold prospects in each company's respective development pipeline.

He framed the transaction as putting two quality, low-risk businesses together, driven by the geological upside in a mining-friendly region, the ability to optimize each other's mining assets, and create, conservatively speaking, $2 billion in operational synergies over the next 10 years.

"This was one that was regionally driven," said Boyd. "There's a number of components that made sense."

"This is going to be a very sizeable company," he said, "a dominant Canadian miner that has all the skills, all the experience, the high-quality assets, the financial firepower, and the strategy that created per-share value that's going to succeed for many, many years."

"It's definitely a defining moment in the Canadian gold space," added Makuch. "This has been on our minds for quite some time as something we really see as the best thing to do for the industry."

Kirkland Lake Gold had already been making great gains in northeastern Ontario with new gold resources and an updated new mine plan in 2022 at Detour Lake and the completion this year of its No. 4 shaft at Macassa in Kirkland Lake to access more gold reserves.

Agnico Eagle runs both open-pit and underground operations in northwestern Quebec with Canadian Malartic and Goldex, three operations in Nunavut, and one each in Finland and Mexico, plus a slew of development properties, including in the Kirkland Lake camp.

Both Boyd and Makuch frequently mentioned "synergies" in discussing geographical proximity of their respective operations, complementary skill sets, capabilities and similar cultures each company brings to the table.

In the Kirkland Lake camp, Makuch said a crew is currently completing the No. 4 Shaft project at Macassa Mine over the next month. That crew could be deployed to help develop Agnico's nearby Upper Beaver gold project. Kirkland Lake Gold also built a ramp to surface at Macassa to mine near-surface mineralization that's only a couple of hundred metres away from gold resources on Agnico Eagle ground.

Agnico has been advancing its Upper Beaver gold project, recently buoyed by some of its best drill holes to date with significant gold and copper grades.

Boyd said this buildable project should certainly benefit from the proximity of processing mills at nearby Macassa and the shuttered Holt operation near Matheson.

"That's a good example of why this combination makes sense."

Makuch said this merger will bring "significant benefit" to the Kirkland Lake area in building a larger regional production centre by combining their Macassa and Holt operations with Agnico's Upper Beaver and Upper Canada gold projects.

Their combined assets, capabilities and skill sets should make for better mine optimization, sharing of best practices and new technologies, and reducing capital expenditures in the gold camps that will move projects into production quickly.

These collective efforts should go a long way to making new gold discoveries and unlocking the value in the Kirkland Lake area, Makuch said.

On the technology side, Makuch said Agnico Eagle is more advanced in its operating systems in automation and digitization of equipment, and the adoption of artificial intelligence to build data-driven 'Smart Mines' and make these operations a better place for people to work and more environmentally and socially responsible.

"I think that's a big plus for Kirkland Lake of boosting that area and the economy for people in the region," he said.

Both companies have been aggressive in financing exploration to extend mine life at their respective operations and Makuch indicated there's no reason to suggest that won't continue.

"We're gonna hit the ground running. It gives the opportunity for new potential," he said, with significant "organic growth" opportunities with each operation that can demonstrate the ability to extend mine life beyond 20 years.

In terms of relationships with First Nations, Boyd said with their Upper Beaver Project, they already have strong relationships in place in the Kirkland Lake camp and are already in partnership with the same Indigenous groups as with the Macassa Mine.

Makuch said both companies already have a demonstrated track record of trust with Indigenous groups in how they operate and treat people. In northeastern Ontario and Australia, he said, they have good relationships with Indigenous communities that are built on respect and recognizing that it's a partnership.