Kirkland Lake Gold is acquiring its northeastern Ontario neighbor, Detour Gold, for $4.9 billion.
The two Toronto-headquartered gold producers made the announcement in a joint release, Nov.25.
Kirkland Lake Gold called Detour Gold and its main asset, the open-pit Detour Lake operation, north of Cochrane, a “cornerstone asset” that’s on par with its Macassa Mine complex in Kirkland Lake and the Fosterville Mine in Australia.
Under the terms of the deal, all 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.
The Detour Lake pit has current annual production of 600,000 ounces per year, and according, to its prospective new owner, considerable upside to increase gold reserves and resources through exploration on the Abitibi Greenstone Belt.
The operation is 185 kilometres northeast of Cochrane by road and 300 kilometres north of Kirkland Lake.
Gold production began in February, 2013.
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Should the transaction go through Kirkland Lake Gold and Detour Gold shareholders will own approximately 73 per cent and 27 per cent of the new company.
The transaction occurs more than a year after a New York hedge fund, Paulson & Co., Detour’s largest shareholder, won a boardroom battle over how the operation was managed. It resulted in massive turnover in Detour’s upper ranks and on the board of directors. Michael McMullen took the helm as president-CEO last May.
The directors on the boards for both companies are recommending approval of the acquisition.
Both companies anticipate the shareholder meetings and closing of the transaction by the end of January 2020.
As part of their pitch to shareholders, Kirkland Lake Gold said the acquisition boosts the company’s mineral reserves to 15.4 million ounces, enlarges their land position in the Abitibi, and will deliver immediate cash flow per share.
Kirkland Lake Gold president-CEO Tony Makuch called the acquisition of Detour Lake “an excellent fit.”
“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.”
Makuch said Detour delivers a more than 20-year mine life with excellent growth potential.
“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.”
Plans are in the works to step up exploration in the belief there is “considerable potential” for new discoveries on Detour Gold’s 1,040 square kilometre property, said Makuch.
“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 (in Australia).”
Detour Gold’s McMullen attributes the deal to the improvements made in operations.
“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.”
Detour Lake has a mine life of approximately 23 years with an average gold production of 659,000 ounces per year. The operation includes the development of the West Detour project, which is currently being permitted.
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