Centerra Gold Inc. (TSX:CG) and Thompson Creek Metals Company Inc. (TSX:TCM) (OTCQX:TCPTF) are pleased to announce that they have entered into a definitive arrangement agreement whereby Centerra will acquire all of the issued and outstanding common shares of Thompson Creek. In connection with the closing of the Arrangement, Centerra will redeem all of Thompson Creek’s secured and unsecured notes at their call price plus accrued and unpaid interest, in accordance with their terms. Under the terms of the Arrangement Agreement, all of the Thompson Creek issued and outstanding common shares will be exchanged on the basis of 0.0988 of a Centerra common share for each Thompson Creek common share. Upon completion of the Arrangement, existing Centerra and Thompson Creek shareholders are expected to own approximately 92% and 8%, respectively, of the pro forma company.
The Exchange Ratio implies consideration of C$0.79 per Thompson Creek common share, based on the closing price of Centerra common shares on the Toronto Stock Exchange on July 4, 2016, representing a 32% premium to the closing price of Thompson Creek common shares on the TSX on July 4, 2016. The Exchange Ratio implies a premium of 33% to Thompson Creek common shares based on each company’s 20-day volume weighted average price on the TSX for the period ending July 4, 2016. Total transaction value, including the assumption of capital lease obligations, is equal to ~US$1.1 billion.
In connection with the proposed transactions, Centerra has entered into a binding commitment letter with Royal Gold Inc. whereby, upon the closing of the Arrangement, Royal Gold’s 52.25% gold streaming interest at Mount Milligan will be amended to a 35.00% gold stream and 18.75% copper stream. The transfer payment on the gold stream will remain at US$435/oz while the new copper stream will have a transfer payment equal to 15% of the prevailing market price of copper. Based on the midpoint of Thompson Creek’s 2016 production guidance (240-270 Koz of payable gold and 55-65 MMlbs of payable copper), Mount Milligan’s revenue split to Centerra under the amended stream agreement is expected to be approximately 70% gold, and 30% copper at current spot prices of US$1,351/oz gold and US$2.21/lb copper.
Thompson Creek operates the world class Mount Milligan Mine in British Columbia, Canada, a premier low-cost asset with more than two additional decades of profitable production expected from the current reserve base. Together with Centerra’s low-cost, long-lived Kumtor Mine in the Kyrgyz Republic, the combined company is expected to be firmly established as a low-cost gold producer with a geographically diversified footprint and industry-leading margins. In addition, the combined company will possess a high quality pipeline of development opportunities and is well positioned to sustain and grow its production base. With a strong balance sheet and liquidity profile, sector leading operating margins, and moderate capital requirements, the combined company is expected to continue to generate robust free cash flows for many years to come.
Highlights of the Transaction
Scott Perry, CEO of Centerra, said, “The combination with Thompson Creek is a highly compelling transformative transaction that diversifies Centerra’s operating platform and adds low risk production and cash flow from a very high quality, long-lived asset in Mount Milligan. The acquisition will establish an operating base in Canada -one of the lowest risk mining jurisdictions in the world- which will complement our Canadian-based Greenstone project and provide for further flexibility to expand into the Americas. Furthermore, the amendment to the Royal Gold stream repositions the asset by maximizing gold exposure for our shareholders. This business combination is complementary in nature, combining Centerra’s robust balance sheet with Thompson Creek’s high quality asset base.”
Jacques Perron, President and CEO of Thompson Creek, stated, “Following a formal strategic review process and the evaluation of numerous strategic alternatives to address Thompson Creek’s upcoming debt maturities, I am pleased to announce the business combination of Thompson Creek with Centerra. We believe the combination with Centerra represents a unique opportunity for our shareholders to gain exposure to additional high-quality assets with a strong development pipeline. While we believe this transaction delivers our shareholders an attractive premium today, it also delivers our shareholders with significant value generation opportunities going forward.”
“Royal Gold congratulates Thompson Creek for developing Mount Milligan into a world class asset”, Tony Jensen, President and CEO of Royal Gold, said, “Looking forward, we welcome Centerra as our new partner at Mount Milligan and we are pleased that a strong management and operating team will continue to lead the operations at the mine.”
Benefits to Centerra Shareholders
Benefits to Thompson Creek Shareholders
Board of Directors’ Recommendations
The Arrangement Agreement has been approved by the Board of Directors of each of Centerra and Thompson Creek. The Thompson Creek Board recommends that Thompson Creek shareholders vote in favor of the Arrangement. BMO Capital Markets has provided an opinion to the Board of Directors of Thompson Creek, stating that in its opinion, and based upon and subject to the assumptions, limitations, and qualifications set forth therein, the Exchange Ratio pursuant to the Arrangement is fair, from a financial point of view, to the Thompson Creek shareholders.
The proposed business combination will be effected by way of a plan of arrangement completed under the Business Corporations Act (British Columbia). The Arrangement will require approval by 66 2/3 percent of the votes cast at a special meeting of Thompson Creek shareholders. In addition to shareholder and court approvals, the Arrangement is subject to applicable regulatory approvals and the satisfaction of certain other closing conditions customary in transactions of this nature.
The Arrangement Agreement includes customary provisions including non-solicitation provisions, including a US$35 million termination fee payable to Centerra under certain customary circumstances.
The proposed redemption of Thompson Creek’s 9.75% secured notes due in 2017, the 7.375% unsecured notes due in 2018, and the 12.5% unsecured notes due in 2019 is expected to be financed with a combination of a new US$325 million senior secured revolver and term loan facility provided by Scotiabank, a C$170 million bought deal subscription receipt offering which has been announced today by way of a separate press release and cash on hand at Centerra and Thompson Creek.
Full details of the proposed transactions will be included in Thompson Creek’s proxy statement and information circular, which is expected to be mailed to shareholders in August 2016. It is anticipated that the Thompson Creek shareholder meeting and closing of the proposed transactions will take place in the Fall of 2016.
Advisors and Counsel
Credit Suisse Securities (Canada), Inc. acted as financial advisor to Centerra and Stikeman Elliott LLP, Weil, Gotshal & Manges LLP and Holland & Hart LLP acted as Centerra’s legal advisors. Cormark Securities has provided a fairness opinion to the Centerra Board of Directors. BMO Capital Markets and Moelis & Company acted as financial advisors to Thompson Creek. BMO Capital Markets has provided a fairness opinion to the Thompson Creek Board of Directors. Cassels Brock & Blackwell LLP, Perkins Coie LLP and Gibson, Dunn & Crutcher LLP acted as Thompson Creek’s legal advisors.
About Centerra Gold
Centerra Gold Inc. is a Canadian-based gold mining company focused on operating, developing, exploring and acquiring gold properties in Asia, North America and other markets worldwide. Centerra is the largest Western-based gold producer in Central Asia. Centerra’s shares trade on the Toronto Stock Exchange (TSX) under the symbol CG. The Company is based in Toronto, Ontario, Canada.
About Thompson Creek Metals
Thompson Creek Metals Company Inc. is a North American mining company. The Company’s principal operating property is its 100%-owned Mount Milligan Mine, an open-pit gold and copper mine and concentrator in British Columbia. The Company’s molybdenum assets consist of its 100%-owned Thompson Creek Mine, an open-pit molybdenum mine and concentrator in Idaho, its 75% joint venture interest in the Endako Mine, an open-pit molybdenum mine, concentrator and roaster in British Columbia, and its Langeloth Metallurgical Facility in Pennsylvania. The Company’s development projects are the Berg and IKE properties, both copper, molybdenum and silver exploration properties located in British Columbia. The Company’s principal executive office is located in Denver, Colorado.
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