The US$480 million transaction will increase Equinox's portfolio to eight producing mines with production guidance of 750,000 ounces in 2021 at an all-in sustaining cost (AISC) of US$1,000/oz, with four growth projects providing the company with a path to 1 million ounces a year of production. The pro-forma company would count 15.2 million ounces of proven and probable reserves and 28.2Moz of measured and indicated resources roughly split between its four operating countries: Canada, USA, Mexico and Brazil.
"This is a logical deal, low risk and value creating for everyone," said Equinox Gold chair Ross Beaty during a conference call.
"Premier fits our strategic plan, to grow as big as we can and quickly as we can as safely as we can and as assertively as we can. Hardrock is pure gold in Canada, ready to build and within our technical capacity to manage.
"Premier has many undervalued assets in its portfolio that we will be able to grow value from.
"This gives as much leverage as possible to today's bull market in gold: every ounce builds value with every dollar increase in the gold price."
As part of the transaction Premier will spin out its assets in Nevada, USA, into a newly created company to be called i-80 Gold which will own the South-Arturo and McCoy-Cove properties and Premier's previously announced acquisition of the Getchell project. Equinox Gold and existing shareholders of Premier will own 30% and 70% of i-80 Gold, respectively.
"This transaction is exactly the kind of accretive Americas-focused growth we promised shareholders when we started Equinox Gold at the beginning of 2018," Beaty said.
"The addition of a top-tier, low-risk mining jurisdiction in Ontario, Canada creates a lower risk profile, with greater asset and country diversification. Hardrock will be an excellent, low-cost, long-life gold mine with significant exploration upside, further enhancing our existing peer-leading growth profile without stretching our financial capacity."
Equinox will acquire a 50% interest in the permitted, development-ready, multi-million-ounce open pit Hardrock project through the Greenstone Gold Mines joint venture with Orion Mine Finance, with the project likely to add about 179,000ozpa of attributable production when in operations.
The development of Hardrock has been under a shadow of doubt for much of the past year due to a dispute and lawsuit between Premier and former project partner Centerra Gold, with Premier arguing that a feasibility study on the project should have led to a development decision. This dispute is now moot following the concurrent announcement that Premier shareholder Orion Mine Finance agreed to buy Centerra's 50% interest for $225 million cash and contingent payments of about $75 million upon reaching various project milestones.
"This transaction paves the way for the development of Premier's flagship asset. We look forward to working with Orion, a long-standing supportive partner of Premier, in advancing the Hardrock project on an expedited timeline," said Premier Gold Mines president and CEO Ewan Downie.
A feasibility study released this week by Premier details average annual production of 358,000 ounces at Hardrock at an AISC of US$618 per ounce over an initial 14-year mine life, with 414,000oz/y at an average head grade of 1.45 g/t gold for the first five years. Hardrock hosts 5.54 million ounces of proven and probable mineral reserves grading 1.27 grams per tonne.
Premier said the project would yield an after-tax net present value of $1.1 billion and an internal rate of return of 20.1% at a $1,400/oz gold price following an initial capital cost of $952 million. Equinox plans to undertake a C$75 million equity financing fully underwritten by Beaty and said it had $570 million in available liquidity to build Hardrock with $370 million in cash and $200 million under its revolving credit facility.
"Combining a 50% interest in the permitted, development-ready Hardrock project with our strong balance sheet and operating cash flow provides a clear path to production for Hardrock that I believe will unlock substantial value for both Equinox Gold and Premier Gold shareholders," said Equinox Gold CEO Christian Milau.
Hardrock also includes three other deposits in the region which could extend the overall life of the project.
The producing Mercedes mine in Sonora, Mexico will add about 50,000oz/y of production with expansion potential to 80,000-to-90,000oz/y.
i-80 Gold will be led by Ewan Downie and plans a public listing prior to or concurrent with closing of the Equinox-Premier transaction, as well as undertaking a financing of up to $75 million. Equinox Gold has committed to subscribe for 30% of the financing up to a maximum of $22.5 million.
The new company will have 2.5Moz of measured and indicated resources and the producing South Arturo mine which is operated by Nevada Gold Mines, and will produce about 40,000oz in 2020. It will also have two development assets: the high-grade McCoy Cove which could produce 92,000oz/y for eight years, according to a 2018 preliminary economic assessment, and the Getchell heap leach project, which hosts 1.5Moz of measured and indicated resources, that Premier is acquiring from Waterton Global Resource Management.
Shares in Equinox Gold are trading at C$13.10, valuing the company at $3.2 billion.
Shares in Premier Gold Mines opened up 19% at C$3, valuing the company at $711 million.
