Agnico’s Low-Premium Deal With Kirkland Lake Propels Stocks Drop

(Bloomberg) — Shares of Agnico Eagle Mines Ltd. and Kirkland Lake Gold Ltd. fell after the two Canadian miners announced a “merger of equals” that offered investors a lower deal premium than other gold combinations.

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The C$13.4 billion ($10.6 billion) transaction, which creates one of the world’s biggest gold producers, follows deals among the world’s biggest gold producers that have reshaped the industry in recent years, though it offered a more meager premium than other gold producer takeovers.

Investors will receive 0.7935 of an Agnico share for each Kirkland share held, which represents a premium of about 1% over Kirkland’s 10-day volume weighted average price in Toronto trading, the companies said Tuesday in a statement. In comparison, Newmont Corp.’s takeover of Goldcorp Inc. in 2019 generated about a 17% premium, while Kirkland Lake’s purchase of Detour Gold Corp. later that year came in with about a 24% premium.

Barrick Gold Corp.’s 2018 takeover of Randgold Resources set the tone of offering low or no premium paid by the buyer, while mergers of medium or smaller sized gold companies have historically fetched higher premiums.

Agnico shares fell 0.7% to C$63.34 at 11:49 a.m. trading in Toronto, while Kirkland Lake dropped 7.7% to C$51.17 in its biggest intraday decline since November.

Agnico’s agreed to combine with Kirkland creates one of the top gold producers in the world, with mines and assets in Canada, Australia, Finland and Mexico and expected production of 3.4 million ounces of gold this year. The deal could herald more consolidation in the gold industry where investors look for deals that unlock value, add long-term value and platforms to last for a long time, Agnico Chief Executive Officer Sean Boyd said during a conference call with analysts.

“Both companies don’t have to do this,” Boyd said during the call. But “strategic rational makes sense and the industrial logic is there,” with a synergy of $2 billion over the next 10 years.

Gold mining reserves and mine lives are shrinking as a result of years of under-investment in exploration and development, while producers of the precious metal face rising production costs and inflation.

The merged miner will use Agnico’s name and have a board and management team drawing from both companies. Tony Makuch, currently Kirkland’s CEO, will take the top job once the deal is completed, while Boyd will become executive chair.

Agnico had been shied away from large deals in the past, but this deal is “more about a number of mines and location of mines in terms of manageability, rather than an overall ounce number,” Boyd said. It’s also about the exploration potential where the merged company will be able to grow deposits and lifelong assets in “good parts of the world where you can actually do business.”

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