Great Bear Royalties up 48% on takeover news

Royal Gold Inc. [RGLD-NASDAQ] has agreed to acquire Great Bear Royalties Corp. [GBRR-TSXV] in a $200 million all-cash transaction.

Great Bear Royalties Corp is a precious metals royalty and streaming company. Its principal asset is a 2% net smelter royalty on Kinross Gold Corp.’s (K-TSX, KGC-NYSE) Great Bear project, which is located in the Red Lake Mining District of northwestern Ontario.

Under the terms of the transaction, Great Bear Royalties shareholders will receive a cash consideration of $200 million or $6.65 per share on a fully diluted basis. It said the transaction price represents a premium of 51.1% and 43% to the closing price and the 20-day volume weighted average price, respectively, of Great Bear Royalties shares on the TSX Venture Exchange as of July 8, 2022.

On Monday, Great Bear Royalties shares jumped 48% or $2.11 to $6.51 on active volume of 977,870. The shares were previously trading in a 52-week range of $8.24 and $3.31.

“We strongly support Royal Gold’s offer to acquire the company and encourage all shareholders to do so as well,” said Great Bear Royalties President and CEO Calum Morrison.

The Great Bear project was acquired by Kinross Gold for $1.8 billion in February, 2022. It ranks as Canada’s newest major gold discovery and is currently the site of one of the largest exploration programs currently under way in this country.

Following a series of significant discoveries by the Great Bear exploration team in 2019, the company elected to spin out a 2.0% NSR in 2020 into Great Bear Royalties. The aim was to offer shareholders the best possible value accretion.

Kinross has disclosed plans to declare a maiden inferred mineral resource estimate on the Great Bear project as part of its 2022 year-end results and commence a pre-feasibility study on a portion of the deposit in 2023.

This will include critical fieldwork, including metallurgy, hydrology, geotechnical drilling and test work, and permitting baseline studies. Kinross is expected to complete 200,000 metres of drilling this year using approximately eight diamond drill rigs, focusing on the LP Fault zone, the most significant and highest grade portion of the Great Bear project.

Early indications by the company are that the open pit could produce upwards of 500,000 ounces of gold annually starting in 2029 with the potential for a similar size underground operation longer term. Great Bear is an early-stage project with very little information.

Kinross has a buyback option on a portion of the royalty. It can purchase a 25% interest in the royalty (0.5% of the 2.0% royalty rate) for an amount equal to 25% of the acquisition price, adjusted for inflation, at any time from the transaction closing date until the earlier of a construction decision for the Great Bear project and 10 years after the transaction closing date.