Centerra Gold has reached an all-share exchange agreement to acquire Thompson Creek Metals Co. Under the terms of the agreement, each Thompson Creek share will be exchanged for 0.0988 of a Centerra common share. Upon completion of the arrangement, existing Centerra and Thompson Creek shareholders are expected to own approximately 92% and 8%, respectively, of the pro forma company.
The exchange ratio implies consideration of C$0.79 per Thompson Creek common share, based on the closing price of Centerra common shares on the Toronto Stock Exchange (TSX) on July 4, representing a 32% premium to the closing price of Thompson Creek common shares on the TSX on July 4. Total transaction, including the assumption of capital lease obligations, is valued at $1.1 billion.
In connection with the proposed transactions, Centerra has entered into a binding commitment letter with Royal Gold whereby, upon the closing of the arrangement, Royal Gold’s 52.25% gold streaming interest at Mount Milligan will be amended to a 35% gold stream and 18.75% copper stream. The transfer payment on the gold stream will remain at $435/oz while the new copper stream will have a transfer payment equal to 15% of the prevailing market price for copper. Based on the midpoint of Thompson Creek’s 2016 production guidance (240,000-270,000 oz of payable gold and 55-65 million lb of payable copper), Mount Milligan’s revenue split to Centerra under the amended stream agreement is expected to be approximately 70% gold, and 30% copper at current spot prices of $1,351/oz gold and $2.21/lb copper.
Thompson Creek operates the Mount Milligan mine in British Columbia, Canada, a low-cost asset with more than two additional decades of profitable production expected from the current reserve base. Together with Centerra’s low-cost, long-lived Kumtor mine in the Kyrgyz Republic, the combined company is expected to be firmly established as a low-cost gold producer with a geographically diversified footprint and industry-leading margins. In addition, the combined company will possess a pipeline of development opportunities and is positioned to sustain and grow its production base, including the Öksüt project in Turkey, Gatsuurt in Mongolia, and Greenstone in Canada, which could drive incremental gold production of approximately 500,000 oz.
Mount Milligan adds a North American cornerstone asset that could significantly increase Centerra’s production, reserves and resources, and cash flow. With Mount Milligan and Kumtor, the combined company will have a high-quality diversified producing platform with a balanced geopolitical risk profile. The 2016 pro forma annual production of the combined companies would be approximately 675,000-725,000 oz of gold at all-in sustaining costs (AISC) net of byproduct credits of $850-$925/oz.