Centerra Gold to acquire AuRico Metals for $310-million

See News Release (C-CG) Centerra Gold Inc ---- Mr. Stephen Lang of Centerra reports

CENTERRA GOLD ANNOUNCES FRIENDLY ACQUISITION OF AURICO METALS

 

Centerra Gold Inc. and AuRico Metals Inc. have entered into a definitive arrangement agreement whereby Centerra will acquire all of the issued and outstanding common shares of AuRico Metals for $1.80 in cash consideration per share, representing an aggregate transaction value of $310-million.

 

The purchase price represents a 38-per-cent premium to the closing price of AuRico Metals' common shares on the Toronto Stock Exchange on Nov. 6, 2017, and a premium of 37 per cent to the 20-day volume-weighted average price (VWAP) as of such date.

 

AuRico Metals is developing the Kemess property in British Columbia, Canada, a low-cost brownfield development asset that is host to the feasibility-stage Kemess underground (KUG) and preliminary economic assessment level Kemess East (KE) projects. 

AuRico Metals also owns a high-quality, free-cash-flow-generating royalty portfolio which includes a 1.5-per-cent net smelter return (NSR) royalty on the Young-Davidson gold mine in Ontario and a 2.0-per-cent NSR royalty on the Fosterville mine in Australia. Together with Centerra's low-cost, long-lived Kumtor mine in Kyrgyzstan and the Mount Milligan mine in British Columbia, Canada, Centerra is expected to be firmly established as a low-cost gold producer with a geographically diversified footprint and peer-leading development pipeline. Posttransaction, Centerra is expected to sustain and grow its production base with its strong balance sheet and liquidity profile, sector leading operating margins, and low capital requirements.

 

Highlights of the transaction:

 

Enhances Centerra's high-quality asset base in a world-class jurisdiction: The Kemess property adds a future cornerstone asset that will further bolster Centerra's strong development pipeline including the fully financed Oksut project in Turkey, the Greenstone gold property in Ontario, Canada, and the Gatsuurt project in Mongolia. Kemess will also complement existing Centerra operations at the Mount Milligan mine in British Columbia and has the potential to unlock operating and tax synergies with its existing assets in British Columbia.

Derisked brownfield project: Over $1-billion of surface infrastructure already in place, environmental approvals and an impact benefits agreement with first nations in hand, and permitting well advanced.

Numerous mine life upside opportunities at Kemess: The integration of KUG and KE has the potential to unlock a number of synergies and optimization opportunities.

Attractive acquisition return profile: The transaction is expected to be accretive to Centerra shareholders, on a per-share basis, to net asset value, reserves and resources.

Optionality retained in royalty portfolio: The acquisition of a high-quality, free-cash-flow-generating royalty portfolio provides immediate incremental cash flow and long-term upside from strong underlying assets.

Maintains strong balance sheet: Centerra currently holds in excess of $350-million (U.S.) in cash to finance the acquisition and has secured a new $125-million (U.S.) acquisition facility. Centerra plans to maintain its strong cash balance which positions the company with the financial strength and flexibility to finance operating and capital expenditures required to build out its pipeline of development projects. Centerra plans to restructure its current debt facilities in connection with the closing of the arrangement.

Stephen A. Lang, chairman and director of Centerra, said: "With the acquisition of the AuRico Metals assets, Centerra expands its existing development pipeline to include another low-cost derisked brownfield development asset, the Kemess property, located in Canada -- one of the lowest-risk mining jurisdictions in the world. As well, the company adds a high-quality, free-cash-flow-generating royalty portfolio. In the future, as the company delivers on building out this development pipeline its production base will be sustained and continue to grow with sector-leading operating margins positioning the company to generate robust free cash flows for many years to come."

 

Chris Richter, president and chief executive officer of AuRico Metals, stated: "Since AuRico Metals' inception in the middle of 2015, our key objective has been to surface what we saw as significant value in the Kemess project. I am delighted to now see this value being recognized, with our shareholders receiving a strong cash offer from Centerra at a very attractive premium of 38 per cent to the current spot price, and representing a return of over three times their initial investment in a period of less than 2-1/2 years. I am proud of the success the AuRico Metals team has had in advancing Kemess while growing the value of our portfolio of high-quality royalties. I also believe that Centerra is ideally positioned to realize the full potential of Kemess as a long-life, significant gold and copper producer."

 

Benefits to Centerra:

 

Acquiring a derisked, brownfield development asset located in Canada that is complementary to Centerra's Mount Milligan operation and has the potential to generate meaningful synergies;

Adds a strong polymetallic project in a Tier 1 jurisdiction that yields high-margin gold and copper production at a time when copper markets are expected to improve significantly;

Significant mine life improvement potential through the potential KUG and KE integration, resource to reserve conversion, and exploration potential;

Expected to improve Centerra's operating cost profile and generate meaningful life-of-mine free cash flows;

High-quality, cash flow generating royalty portfolio.

Benefits to AuRico Metals:

 

Immediate and significant premium of approximately 38 per cent based on the prior-day closing price, and 37 per cent based on the 20-day VWAP;

All-cash offer, not subject to financing condition;

Strong deal certainty with support agreements from directors and senior officers of AuRico Metals as well as Alamos Gold Inc.;

Secures future financing for Kemess to realize its future potential.

Transaction summary and timing

 

The proposed business combination will be effected by way of a plan of arrangement completed under the Business Corporations Act (Ontario). The arrangement will require approval by 66-2/3rds per cent of the votes cast at a special meeting of AuRico Metals shareholders. In addition to shareholder and court approvals, the arrangement is subject to applicable regulatory approvals and the satisfaction of certain other closing conditions customary in a transaction of this nature. Directors and senior officers of AuRico Metals, in addition to Alamos Gold Inc., collectively representing approximately 11.4 per cent of the outstanding AuRico Metals common shares, have entered into support agreements pursuant to which they have agreed to vote in favour of the proposed transaction.

 

The arrangement agreement includes customary provisions including non-solicitation provisions, including a $12-million termination fee payable to Centerra under certain customary circumstances.

 

Full details of the arrangement will be included in the meeting materials which are expected to be mailed to AuRico shareholders in connection with the AuRico shareholder meeting that will take place in December, 2017, with closing of the arrangement expected in January, 2018.

 

Transaction financing

 

The proposed acquisition is expected to be financed through a combination of a new $125-million (U.S.) acquisition facility and cash on hand at Centerra.

 

Board of directors recommendations

 

The arrangement agreement has been approved by the board of directors of each of Centerra and AuRico Metals. The AuRico Metals board of directors recommends that AuRico Metals shareholders vote in favour of the arrangement. Macquarie Capital Markets Canada Ltd. has provided an opinion to the board of directors of AuRico Metals, stating that in its opinion, and based upon and subject to the assumptions, limitations and qualifications set forth therein, the purchase price pursuant to the arrangement is fair, from a financial point of view, to the AuRico Metals shareholders.

 

Scotia Capital Inc. has provided an opinion to the Centerra board of directors, stating that in its opinion, and based upon and subject to the assumptions, limitations, and qualifications set forth therein, the purchase price pursuant to the arrangement is fair, from a financial point of view, to Centerra.

 

Scott Perry, chief executive officer and director of Centerra, also holds a director position on the board of directors of AuRico Metals and has therefore recused himself from the transaction from both a Centerra and AuRico Metals perspective. In connection with the arrangement, Mr. Perry has resigned from the board of directors of AuRico Metals contemporaneously with the execution of the arrangement agreement.

 

Advisers and counsel

 

Scotia Capital Inc. acted as financial adviser to Centerra and Stikeman Elliott LLP acted as Centerra's legal advisers. Scotia Capital Inc. has provided a fairness opinion to the Centerra board of directors.

 

Macquarie Capital Markets Canada Ltd. acted as financial adviser to AuRico Metals and Fasken Martineau DuMoulin LLP acted as AuRico Metals' legal adviser. Macquarie Capital Markets Canada Ltd. has provided a fairness opinion to the AuRico Metals board of directors.

 

Conference call

 

Centerra Gold and AuRico Metals will host a joint conference call on Tuesday, Nov. 7, 2017, at 8 a.m. Eastern Time for members of the investment community to discuss the transaction. The call-in details are as follows:

 

North American participants should dial the toll-free number:  800-404-5245

 

International participants may access the call at:  1-416-981-9070

 

A copy of the investor presentation is also available:  on the Centerra Gold and AuRico Metals websites

 

An audio recording of the call will be available shortly after the call and will be available until midnight Eastern Time on Friday, Dec. 8, 2017. The recording can be accessed by calling 416-626-4100 or 800-558-5253 and using the pass code 21862384.

 

About Centerra Gold Inc.

 

Centerra Gold is a Canadian-based gold mining company focused on operating, developing, exploring and acquiring gold properties in North America, Asia and other markets worldwide. Centerra operates two flagship assets, the Kumtor mine in the Kyrgyzstani Republic and the Mount Milligan mine in British Columbia, Canada, and is the largest western-based gold producer in central Asia. The company is based in Toronto, Ont., Canada.

 

About AuRico Metals Inc.

 

 

AuRico Metals is a mining development and royalty company with a 100-per-cent interest in the Kemess property in British Columbia. The Kemess property hosts the feasibility-stage Kemess underground gold-copper project, the Kemess East project, and the infrastructure pertaining to the past-producing Kemess South mine. AuRico's royalty portfolio includes a 1.5-per-cent net smelter return royalty on the Young-Davidson gold mine and a 2-per-cent NSR royalty on the Fosterville mine, as well as a portfolio of additional producing and preproduction royalty assets located in North America and Australia.