Kirkland Lake’s $4.4 B Detour bid backed by proxy firms

A busy scooptram at Osisko Gold's Windfall Lake Project in Quebec, Source: Osisko Mining Inc.

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Kirkland Lake Gold Ltd.‘s [KL-TSX, NYSE; KLA-ASX] $4.4 billion bid for Detour Gold Corp. [DGC-TSX;  has won the backing of two proxy advisory firms on the grounds that Detour’s shareholders would reap the benefits of being investors in a larger company.

Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. LLC have both recommended that the company’s shareholders vote for the share issuance in connection with Kirkland Lake’s proposed acquisition of Detour Gold, a move that is expected to bolster the chances of the deal going ahead.

Under the terms of a plan of arrangement that was announced on November 24, 2019, the exchange ratio is 0.4343 Kirkland Lake shares for each Detour Gold share. Upon completion of the arrangement, existing shareholders of Kirkland Lake and Detour Gold are expected to own approximately 73% and 27% of the outstanding shares of the pro forma company, respectively.

Detour Gold shares eased 1.4% or 35 cents to $24.71 on Friday. The shares trade in a 52-week range of $11.23 and $26.14. Kirkland Lake Gold shares fell 1.4% or 80 cents to $56.79. The shares trade in a 52-week range of $34.44 and $67.88.

Detour Gold is an intermediate gold producer in Canada. It operates the large-scale Detour Lake mine in northern Ontario about 300 km northeast of the Timmins. It is expected to produce 600,000 ounces of gold this year at an all-in-sustaining cost of US$1,100/oz. Detour Lake is estimated to host 15.4 million ounces of gold reserves, sufficient metal to support a mining operation for 20 years.

Over the life of the mine, Detour Lake is expected to generate average annual production of 650,000 ounces as an AISC of US$984/oz.

Kirkland Lake Gold is a mid-tier gold producer with operations in Canada and Australia. The company said it is on track to produce between 950,000 ounces and one million ounces of gold in 2019. In Canada, its portfolio includes the Macassa Mine and the Holt Complex, which consists of three mines (Holt, Holloway and Taylor). All of its Canadian operations are located near Kirkland Lake, Ontario.

The Australian portfolio includes the Fosterville Mine in Victoria State, and the Northern Territory operation, including the Cosmo Mine and Union Reefs mill. Cosmo was placed on care and maintenance on June 30, 2017.

As a result, combined production from the assets of both companies is expected to be around 1.5 million ounces in 2020.

“The acquisition of Detour will significantly enhance Kirkland’s mineral reserve base, complements Kirkland’s existing operating profile and provides additional exploration upside as Kirkland plans to conduct extensive drilling at highly prospective targets with Detour’s land position,” Glass Lewis said.

Following its assessment of the arrangement, ISS stated, among other things that the transaction makes strategic sense as it will add a long-life, high-quality asset to Kirkland’s portfolio, and will strengthen the company’s position as a senior gold producer with significant free cash flow.

“Furthermore, the company will emerge with a strengthened balance sheet and capital markets profile with a much larger reserve base and extended mineral reserve life index,” ISS said.

ISS recommended that Detour Gold shareholders vote in the favour of the transaction on the basis that the expected diversification of risk will protect shareholders against the significant loss that could result from having all of Detour’s business in just one asset.

Kirkland Lake Gold’s special meeting in connection with the arrangement is scheduled for 11:00 a.m., January 28, 2020, at the TSX Exchange Tower. Detour Gold shareholders are scheduled to vote on the transaction on the same day at 10:00 a.m.

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