Sound familiar? That’s because Asanko Gold (AKG:TSX) and PMI Gold (PMV:TSX) attempted a merger in late 2012 that was mutually terminated in early 2013 after it became apparent they wouldn’t get the supermajority votes necessary to complete the transaction. Now, after the largest price decline in gold in over a decade and the substantial derisking that management of Asanko has done over the past year, including $150 million financing, Asanko and PMI believe the timing is right. Under the terms of the arrangement, each PMI shareholder will receive 0.21 shares of Asanko valuing PMI at roughly $0.44 per share representing a 79% premium to the 20-day VWAP. If the transaction is completed, each company will hold 50% of the combined company.
The companies host neighboring gold development projects in Ghana, West Africa. Asanko holds the Esaase project which hosts 2.4 million ounces 2P reserves at 1.4g/t gold average grade. The project is fully funded with $185 million in the treasury and a $150 million project facility from Red Kite. A feasibility study released in May 2013 shows production of 200,000 ounces annually for an 11 year mine life with $843 per ounce all in costs. PMI holds the Obotan project which is also slated to produce 200,000 ounces per year over a 10 year mine life.
Both are open-pit projects and Asanko believes they will be able to save over $100 million in development and sustaining capital by combining the two projects. The options for developing both projects and realizing these synergies include the potential of utilizing flotation at Obotan and trucking concentrate to Esaase for leaching and/or the potential of transferring ore from the Obotan pits to Esaase in combination with a process plant expansion at Esaase.
Peter Breese, President and CEO of Asanko, said “The combination of the Esaase and Obotan Gold Projects into an integrated mining operation is an overwhelmingly accretive transaction for both Asanko and PMI shareholders due to the inherent synergies that can be captured through co-developing the projects.”
The Asanko Board of Directors will be comprised of seven directors: Peter Breese, Peter Bradford, Gordon Fretwell, Marcel de Groot, Shawn Wallace, Colin Steyn and Michael Price. Peter Breese will remain the President and CEO of the combined company. Peter along with Colin Steyn founded and sold LionOre Mining which was sold to Norilsk for $6 billion. Mr. Breese would become CEO of the integrated Norilsk after the acquisition.
Director, Marcel de Groot is a financing force of his own having helped raise more than $800 million for companies involved with his Pathway Capital venture capital firm (Luna Gold, Lowell Copper, Sandstorm Gold, the list goes on).
The combined company will have a strong balance sheet with over $280 million in cash and $150 million project facility. Esaase’s capital costs are estimated at $286 million so the combined company will have options for developing Obotan in the mid-term, after Esaase. Asanko claims they will receive permits for the project “imminently” and plans to release a definitive feasibility study for Esaase in early 2014 which broadly confirms the outcomes of the 2013 feasibility study.
PMI and Asanko have received lockups for 20% and 9.6%, respectively.
Asanko is down roughly 50% year-to-date and is trading at cash value:
A joint conference call hosted by Peter Breese and Peter Bradford will be held today at 4:00 pm (EST), 1:00 pm (PST), 9:00 pm (London), Wednesday 5:00 am (Perth) and 8:00 am (Sydney) to discuss this transaction.
Canada Toll-Free: 1-866-228-9189