CAD 1.0 BN DEAL - Kirkland Lake Gold and Newmarket Gold to Combine to Create a New Mid-Tier Gold Company
Kirkland Lake Gold and Newmarket Gold to Combine to Create a New Mid-Tier Gold Company
TORONTO, ONTARIO and VANCOUVER, BRITISH COLUMBIA--(Marketwired - Sept. 29, 2016) - Kirkland Lake Gold Inc. ("Kirkland Lake Gold") (TSX:KLG) and Newmarket Gold Inc. ("Newmarket") (TSX:NMI) are pleased to announce
that they have entered into a definitive agreement (the "Arrangement Agreement") to merge the two companies, creating an exciting new mid-tier gold company (the "Transaction"). The combined company will have a
market capitalization of approximately C$2.4 billion and produce over 500 koz of gold annually. Existing Kirkland Lake Gold and Newmarket shareholders will own approximately 57% and 43% of the combined company, respectively, on a fully-diluted in-the-money basis.
The combination of Macassa and Fosterville will form the production backbone of a new mid-tier, high quality gold producer with low cost production and superior free cash flow generation.
Kirkland Lake Gold operates its flagship Macassa Mine Complex in the historic Kirkland Lake gold camp, as well as the Holt, Holloway and Taylor gold mines (the "Holt Mine Complex") situated along the Porcupine-Destor Fault
Zone, all located in northeastern Ontario. With the addition of Newmarket's Fosterville Gold Mine ("Fosterville") located in the
state of Victoria, Australia and its other gold producing Cosmo and Stawell mines, the targeted gold production of the combined company will effectively be over 500 koz for the full year ended 2016. In addition, the combined company will have comprehensive technical capabilities to exploit its pipeline of development and exploration opportunities across a broad portfolio in both Tier-1 jurisdictions. This growth strategy will be supported by a strong balance sheet with a combined cash balance of over C$275 million along with superior free cash flow generation that amounted to C$92 million, on a combined basis, in the first half of 2016.
Highlights of the Transaction
Key investment highlights of the combined company include:
-- Creation of a new low-cost, mid-tier gold producer: Pro forma company
will produce over 500 koz of gold in 2016 with cash costs of less than
US$650/oz and all-in sustaining cash costs below US$1,015/oz.
-- Diversified production base: Combined company will operate seven mines
and five mills in highly prospective gold camps with low geopolitical
risk - Canada and Australia are two of the top mining jurisdictions in
the world. Key in-country management structure, led by Darren Hall, will
be kept in place to ensure seamless integration of the Australian
operations.
-- Production profile anchored by three high-grade, low-cost operations:
Production profile anchored by the Macassa, Fosterville and Taylor
mines. Combined production in 2016 from these three assets alone will be
over 330koz, with cash costs of under US$600/oz and AISC below
US$800/oz.
-- Driving growth across two world class mining jurisdictions: This
combination brings together a full complement of skill sets to position
the combined company to take advantage of future profitable growth
supported by the enhanced corporate financial strength. In addition, the
combined company will have the ability to cross pollinate best practices
to drive cost savings across the portfolio.
-- Expanded discovery and exploration potential: District-scale property
positions in established gold camps in Canada and Australia with strong
development and exploration pipeline to fuel future organic growth.
-- Strong balance sheet and healthy cash flow generation: Cash balance of
over C$275 million and significant expected free cash flow generation in
2016 will provide industry leading financial strength and flexibility.
Tony Makuch, President and CEO of Kirkland Lake Gold, said, "The combination with Newmarket is a very attractive opportunity for our shareholders. The potential that exists at Macassa as we continue to access higher grade mineralization in the South Mine Complex at depth will be complemented by Fosterville, a high-grade operation with exceptional successful drilling results. We see several opportunities to grow this company within the expanded portfolio, where the combined teams will have the financial and technical capabilities to execute on our progressive growth strategy."
"Finally, I am very pleased to welcome Ray Threlkeld and Maryse Belanger, current Board members of Newmarket, and two new members, Jon Gill and Arnold Klassen to our Board of Directors upon completion of the Transaction. I would also like to welcome Darren Hall, of Newmarket, to Kirkland Lake Gold's management team as President, Australian Operations."
Douglas Forster, President and CEO of Newmarket stated: "The Transaction with Kirkland Lake Gold accomplishes Newmarket's goal of becoming a quality, low cost +500,000 ounce per year gold producer while providing our shareholders with an immediate premium on their shares. The combination of our two flagship mines, Fosterville and Macassa, will be the cornerstone of an exciting new mid-tier gold producer with an attractive growth profile and operations in two of the best mining jurisdictions in the world. The high-grade, visible gold-bearing Eagle Structure at the Fosterville mine continues to deliver impressive exploration success leading to record mill grades and increased production and we are confident that Fosterville will remain a high-grade producer for many years. I would like to thank our shareholders for their support and most importantly, I would like to thank all of Newmarket's employees and contractors who have contributed to the tremendous success of the Company."
Luxor Capital Group, LP, which owns approximately 15.7 million shares of Newmarket as of September 25th, also announced its support of the transaction, "Luxor welcomes the opportunity to combine Newmarket with Kirkland Lake Gold, and in the process add scale, diversity and excellent growth potential to Newmarket's already exciting asset portfolio. Luxor intends to support the transaction in accordance with the recommendation of the Newmarket Board of Directors."
Benefits to Kirkland Lake Shareholders
-- Establishes the company as a high quality, mid-tier gold producer with a
diversified production base and low production costs without adding
development risk;
-- Diversified production base creating a company that has a lower
operating risk profile;
-- Decreases overall production costs and strengthens the company's ability
to withstand fluctuations within the gold market;
-- Strengthens the balance sheet, increases ability to generate free cash
flow and improves financial flexibility;
-- Extensive exploration upside with recent high grade discoveries in the
Lower Phoenix, Harrier and Osprey zones at Fosterville to provide
continued positive share price catalysts;
-- Creates second operating platform to further evaluate growth
opportunities in another Tier 1 jurisdiction.
Benefits to Newmarket Shareholders
-- Immediate up-front premium implied within the exchange ratio;
-- Superior financial strength and flexibility to support a more aggressive
exploration and development program at its Australian operations;
-- Strong exposure to high-quality, high grade Canadian production base;
-- Exposure to a diversified long-life reserve and resource base to support
further growth.
-- Increased trading liquidity, enhanced value proposition and capital
markets profile.
Board of Directors' Recommendations
Kirkland Lake Gold appointed a special committee of independent directors to consider and make a recommendation with respect to the Transaction. The Arrangement Agreement has been unanimously approved by the Board of Directors of Kirkland Lake Gold, with the exception of Eric Sprott who did not participate in the board meetings or vote with respect to the Transaction. The Arrangement Agreement has also been unanimously approved by the Board of Directors of Newmarket. Both Boards of Directors recommend that their respective shareholders vote in favor of the Transaction.
RBC Capital Markets and Maxit Capital LP have provided fairness opinions to the Board of Directors of Kirkland Lake Gold. Each fairness opinion stated that the exchange ratio is fair, from a financial point of view, to the Kirkland Lake Gold shareholders. CIBC World Markets has provided a fairness opinion to the special committee of Kirkland Lake Gold, stating that, as of the date thereof, and based upon and subject to the assumptions, limitations, and qualifications stated in such opinion, the Exchange Ratio is fair, from a financial point of view, to common shareholders of Kirkland Lake Gold.
GMP Securities L.P. has provided a fairness opinion to the Board of Directors of Newmarket, stating that the Transaction is fair, from a financial point of view, to Newmarket.
Transaction Summary
The proposed business combination will be effected by way of a Plan of Arrangement under the Canada Business Corporations Act. At closing, all Kirkland Lake Gold common shares will be exchanged at a ratio of 2.1053 Newmarket common shares per Kirkland Lake Gold common share. Newmarket shareholders will continue to hold their existing common shares. The combined company, to be renamed Kirkland Lake Gold, will trade on the Toronto Stock Exchange ("TSX"). Concurrently with closing the Transaction, the
combined company will undertake a 0.475 for 1 share consolidation subject to approval of the Newmarket shareholders.
Under the terms of the Transaction, existing shareholders of Newmarket will receive 0.475 of a post consolidation share for every 1 pre-consolidation share of Newmarket (the "Exchange Ratio"). The Exchange Ratio implies consideration of C$5.28 per Newmarket common share based on the closing price of Kirkland Lake Gold common shares on the Toronto Stock Exchange
("TSX") on September 28, 2016. The Exchange Ratio represents a
premium of 9.4% based on the closing share price of Newmarket on September 28, 2016 and a premium of 22.9% based on Newmarket's 20-day volume weighted average price on the TSX on September 28, 2016. The implied equity value is equal to C$1.01 billion.
Existing Kirkland Lake Gold and Newmarket shareholders will own approximately 57% and 43%, respectively, of the combined company on a fully-diluted in-the-money basis.
For Kirkland Lake Gold, the Transaction will require approval by 66 2/3 percent of the votes cast by its shareholders as well as the approval of a simple majority of disinterested shareholders voting at a special shareholders meeting. The Transaction will require the approval of a simple majority of the shareholders of Newmarket as well as the approval of 66 2/3 percent of the votes cast by Newmarket shareholders to effect the name change and share consolidation.
Officers and directors of Kirkland Lake Gold, who together control approximately 6.8% of the outstanding shares of Kirkland Lake Gold, have entered into voting support agreements pursuant to which they will vote their common shares in favor of the Transaction. Officers, directors and certain principal shareholders of Newmarket, who together control approximately 21.3% of the outstanding shares of Newmarket, have entered into voting support agreements pursuant to which they will vote their common shares in favor of the Transaction. In addition to shareholder and court approvals, the Transaction is subject to applicable regulatory approvals including TSX approval and the satisfaction of certain other customary closing conditions customary in transactions of this nature.
The Arrangement Agreement includes customary provisions including non-solicitation provisions, a right to match any superior proposal, a C$55.0 million termination fee payable to Newmarket under certain circumstances and a C$42.5 million termination fee payable to Kirkland Lake under certain circumstances.
Management Team and Board of Directors
The senior executive team and the Board of Directors of the combined company is enhanced by the addition of the new members who all have a wealth of knowledge and experience to support the newly combined entity.
The new Board of Directors will be comprised of the following individuals:
Eric Sprott Chairman of the Board Ray Threlkeld Independent
Tony Makuch President & CEO Maryse Belanger Independent
Barry Olson Independent Jon Gill New independent member
Pamela Klessig Independent Arnold Klassen New independent member
Jeffrey Parr Independent
Timing
Full details of the Transaction will be included in the management information circulars of Kirkland Lake Gold and Newmarket and are expected to be mailed to their respective shareholders in October 2016. It is anticipated that both shareholder meetings and closing of the Transaction will take place in the fourth quarter of 2016.
Advisor and Counsel
RBC Capital Markets and Maxit Capital LP are acting as financial advisors to Kirkland Lake Gold with Cassels Brock & Blackwell LLP acting as its legal advisor.
GMP Securities L.P. is acting as financial advisor to Newmarket. Stikeman Elliott LLP is acting as Newmarket's legal advisor.
Conference Call
Kirkland Lake Gold and Newmarket will host a joint conference call on Thursday, September 29, 2016 at 8:45 am Eastern Time, or 5:45 am Pacific Time, for members of the investment community to discuss the Transaction. The call-in details are as follows:
Conference ID: 88904219
-- Canada & USA toll-free: (877) 201-0168
-- Outside of Canada & USA: (647) 788-4901
A copy of the investor presentation is also available on the Kirkland Lake Gold and Newmarket investor websites at www.klgold.com and www.newmarketgoldinc.com, respectively. An audio recording of the conference call will be made available shortly after the call on the Kirkland Lake Gold and Newmarket websites.
About Kirkland Lake Gold Inc.
Kirkland Lake Gold is a Canadian focused, intermediate gold producer with assets in the historic Kirkland Lake gold camp, and east of the Timmins gold camp along the Porcupine-Destor Fault Zone, both in northeastern Ontario. The Company is currently targeting annual gold production of between 270,000 to 290,000 ounces from its cornerstone asset, the Macassa Mine Complex and the Holt Mine Complex which includes the Holt, Holloway and Taylor mines.
The Company is committed to building a sustainable mining company that is recognized as a safe and responsible gold producer with quality assets in safe mining jurisdictions.
About the Newmarket Gold Inc.
Newmarket is a Canadian listed gold producer with three 100% owned underground operating mines in Australia. The flagship operation, Fosterville Gold Mine, and the Stawell Gold Mine are located in the state of Victoria, and the Cosmo Gold Mine is located in the Northern Territory. In addition, Newmarket has a pipeline of growth projects within Australia, including The Maud Creek Gold Project in the Northern Territory and the Big Hill Gold Project in the state of Victoria. The Company is based on a strong foundation of quality gold production from its three Australian mines, producing over 220,000 ounces of gold annually. Newmarket is dedicated to the development of its resources, targeted exploration, and prudent cost management practices, while continuing to generate free cash flow and maintaining a large resource base with reserve upside. Newmarket strives to enhance shareholder value through a disciplined approach to growth, focused on organic exploration success on near mine targets and accretive acquisition opportunities in stable mining jurisdictions.
The Toronto Stock Exchange has neither reviewed nor accepts responsibility for the adequacy or accuracy of this news release.