After a lengthy search for an acquisition, Australian gold miner St Barbara has branched out into North America, snapping up Canada's Atlantic Gold for $768 million as it looks to diversify and make the company "stronger for longer".
Atlantic Gold owns the new Touquoy open pit gold mine in Nova Scotia, and has three others in development in a jurisdiction that St Barbara says is both prospective and favourable.
Touquoy, which produced its first commercial gold in early 2018, has an existing mine life of 12 years with substantial reserves and resources.
"We believe we've paid a fair price for a great asset," St Barbara chief executive Bob Vassie said during a call with analysts and investors on Wednesday.
Mr Vassie said St Barbara had been "assessing a range of inorganic growth opportunities", and the acquisition of Atlantic Gold was strongly aligned to its strategic plan.
The Canadian business would substantially diversify St Barbara's production base, by adding operations in North America to its assets in Australia (Gwalia mine and associated processing plant), and Papua New Guinea (Simberi mine).
In an interview with The Age and the Sydney Morning Herald, Mr Vassie said the company had made no secret of its plans to diversify.
"We essentially wanted to add the third leg to the stool to make the company sustainable and stronger for longer," he said.
"The company has been undergoing a pretty good turnaround over the last five years, has a really good balance sheet, (and) so it was time to act," he said.
Mr Vassie said the Canadian business had a long life operation, generated impressive margins and had significant growth potential.
Directors of Atlantic control 32 per cent of the company's shares, and have agreed to vote all of their holdings in favour of the deal.
St Barbara will raise about $490 million to part fund the transaction, via an underwritten pro-rata accelerated non-renounceable entitlement offer of almost 170 million new shares in the company. St Barbara shareholders will be able to buy one new share in St Barbara under the deal, for every 3.1 shares they hold. The $2.89 offer price per new share represents a 13 per cent discount to the stock's last closing price.
The rest of the deal will be funded from current cash reserves. St Barbara has also secured a new $200 million loan facility with Westpac to support its operations.
Shares in St Barbara went into a trading halt on Wednesday, and are expected to come out of that on Friday. The stock closed on Tuesday at $3.32, a level far below its closing price high for the past year of $5.07.
St Barbara had a market capitalisation before the deal was announced of about $1.7 billion.
"Out of nowhere, St Barbara appears to have been the first Australian gold producer to branch out - at a time when many have been expecting Australian producers to snap up foreign (North American) assets," RBC analyst Paul Hissey said in a note to clients.
Mr Hissey said while he wasn't familiar with the Canadian operations to be bought, "a move into Canada should be considered a relatively 'safe' option, although we would be inclined to maintain our view that domestic investors tend to favour simple, locally domiciled production".
He added that St Barbara had "a relatively good track record (and reputation) for operating assets, and we would therefore be inclined to reserve judgment until we have a better understanding of the opportunity".
- SMH/The Age