
All operating and financial estimates in this press release are taken from the technical report entitled, “Porcupine Complex, Ontario, Canada, Technical Report on Preliminary Economic Assessment”, filed at www.sedarplus.ca on or before January 29, 2025. The report includes the results of a preliminary economic assessment which is preliminary in nature. It includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves and there is no certainty that the estimates will be realized.
Discovery Silver Corp. (TSX: DSV, OTCQX: DSVSF) is pleased to announce that it has entered into a definitive agreement to acquire from a wholly owned subsidiary of Newmont Corporation 100% of Newmont’s interest in its Porcupine Operations based in and near Timmins, Ontario, Canada for total consideration of $425 million. All dollar amounts are in US dollars unless otherwise specified.
The consideration to Newmont for the Transaction consists of $200 million in cash and $75 million payable in common shares of Discovery, both of which are payable upon closing of the Transaction, and $150 million of deferred consideration to be paid in four annual cash payments of $37.5 million commencing on December 31, 2027.
To fund the Transaction and provide liquidity in support of operating and growing the Porcupine Complex, Discovery has entered into binding commitments for approximately $555 million of financing, including $400 million related to royalty and debt agreements with Franco-Nevada Corporation and approximately $155 million from a bought deal public offering of subscription receipts. Details of the Financing Package are provided in the section entitled, “FINANCING,” later in this press release.
Tony Makuch, Discovery’s CEO, commented: “The acquisition of the Porcupine Complex is an important step forward as we work to build a highly profitable precious metals producer. Through this acquisition, we are combining growing gold production at Porcupine with tremendous upside, in one of the world’s great gold camps, with our Cordero project, one of the industry’s leading silver development projects based on reserves and expected production.
“A key feature of the Transaction is the unique opportunity it provides to combine high-quality gold production with a leadership team that has extensive experience in the Timmins Camp. On a personal level, I am from Timmins and have worked extensively in the area, including serving as General Manager at Hoyle Pond and other sites, and acting as CEO of Lake Shore Gold, which built and operated the first new major mining operation in Timmins in over two decades (Timmins West Mine). Other members of our team are also from the area and have similar experience working in various operational and management roles in Timmins. We know these assets well and have an extensive understanding of where the value creation opportunities exist. We have a deep connection to the community, including local First Nations groups, and will bring to Timmins the same commitment to responsible mining that has resulted in Discovery receiving numerous recognitions in Mexico, including the Mexican Government’s Quality Environmental Certification.1 In Timmins, the Company is planning significant investments in site restoration and progressive rehabilitation in order to ensure that all sites are properly remediated and are available for future use by the community.
“For shareholders, the Transaction is attractive and will establish a new North American precious metals producer with excellent value creation upside through future operating performance, multiple development projects and extensive exploration potential. We are also diversifying our portfolio, which will reduce risk and provide shareholders with significant leverage to both gold and silver prices. Through our $555 million Financing Package, we will both fund the Transaction and significantly enhance our balance sheet strength. We will also move forward with Newmont and Franco-Nevada as new major shareholders, which will provide these companies with an attractive opportunity to participate in the substantial value we intend to create.”
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1 The Quality Environmental Certification was received in both 2023 and 2024 from Mexico’s Federal Attorney’s Office for Environmental Protection.
TRANSACTION HIGHLIGHTS AND RATIONALE
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2 Refers to total aggregate production from the Timmins Camp (approximately 65 million ounces of total aggregate production from assets included in the Porcupine Complex (see Porcupine Technical Report page 6-7)).
3 Inferred Mineral Resources at Dome were not included in the PEA economic analysis.
4 Project economics in the PEA were generated with a base case using CIBC World Markets Inc.’s December 2024 analyst consensus gold prices, including 2025: $2,576/ounce; 2026: $2,484 per ounce; 2027: $2,437 per ounce; and a LT gold price of $2,150 per ounce beginning in 2028.
5 Sensitivity case involves gold prices +23% to the base case, including a LT gold price of $2,650 per ounce.
PORCUPINE OVERVIEW
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6 Inferred Mineral Resources at Dome were not included in PEA economic analysis.
PORCUPINE COMPLEX – TECHNICAL REPORT
As part of the Company’s evaluation of the Porcupine Complex, Discovery has completed a technical report prepared in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects entitled, “Porcupine Complex, Ontario, Canada, Technical Report on Preliminary Economic Assessment.” The Porcupine Technical Report has an effective date of January 13, 2025.
The Porcupine Technical Report includes the results of a preliminary economic assessment which is preliminary in nature. The PEA includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves and there is no certainty that the preliminary economic assessment will be realized.
Following the Closing Date, the Company expects to complete additional studies to more fully evaluate the growth and optimization opportunities related to the Porcupine Complex.
Porcupine Technical Report Highlights
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7 Example of non-GAAP financial measure – See cautionary note: NON-GAAP FINANCIAL MEASURES.
8 See the section, “PORCUPINE COMPLEX – TECHNICAL REPORT MINERAL RESOURCES” for a breakout of Mineral Resource estimates.
BENEFITS OF TRANSACTION FOR DISCOVERY SHAREHOLDERS
BENEFITS OF TRANSACTION FOR PORCUPINE COMPLEX STAKEHOLDERS
TRANSACTION SUMMARY AND TIMING
Under the Agreement, Discovery will acquire from a wholly owned subsidiary of Newmont all the issued and outstanding common shares of a newly created entity formed to hold 100% of Newmont’s interest in the Porcupine Complex.
Total consideration for the Transaction is $425 million. The Total Consideration includes $275 million of consideration payable on the Closing Date, comprising $200 million of Closing Cash Consideration and $75 million of Closing Equity Consideration, and $150 million of deferred consideration to be paid in four annual cash payments of $37.5 million commencing on December 31, 2027. The Closing Equity Consideration will be paid through the issuance of an aggregate of approximately 120 million Discovery common shares, which will be subject to a one-year lock-up arrangement. Discovery will also assume the environmental liabilities and reclamation obligations related to the Porcupine Complex.
Discovery anticipates that the Closing Date will occur in the first half of 2025. The Transaction’s closing is subject to certain conditions, including, among other things, the transfer of the Porcupine Complex by the Subsidiary to the Porcupine Entity (with the Reorganization being subject to certain approvals, including the consent of Ontario’s Ministry of Mines), receipt of all required regulatory approvals (including the approval of the Toronto Stock Exchange and approval, or expiry of the waiting period, under the Competition Act (Canada)), and other customary closing conditions for a transaction of this nature.
As the total number of shares to be issued to Newmont as part of the Closing Equity Consideration exceeds 25% of Discovery’s current shares outstanding, shareholder approval (50.1% of shares voting at the meeting) will be required to issue excess shares beyond such threshold. Discovery’s two largest shareholders and directors and officers of Discovery, representing in the aggregate approximately 35% of the issued and outstanding Discovery shares, have entered into voting support agreements pursuant to which they have agreed to, among other things, vote their shares in favour of the issuance of the Additional Shares. If shareholder approval is not obtained, the value of the Additional Shares, calculated at the Issue Price (defined below) will be added to the first deferred payment which is due on December 31, 2027. Accordingly, shareholder approval is not a condition precedent to the closing of the Transaction.
FINANCING
To fund the Closing Cash Consideration and expected capital expenditures and working capital requirements at Porcupine following the Transaction, and for general corporate and working capital purposes, Discovery has entered into agreements for a Financing Package totaling $555 million. Of the total Financing Package, $400 million will be provided through royalty and debt agreements with Franco-Nevada, with the remainder to be provided through a C$225 million (approximately $155 million Public Offering) as described below. Franco-Nevada will participate as an approximately $50 million (approximately C$70 million) cornerstone investor in the Public Offering.
Franco-Nevada Financing:
The $400 million of royalty and debt financing from Franco-Nevada includes:
Public Offering
As part of the Financing Package, the Company has also entered into an agreement with BMO Capital Markets as sole bookrunner and SCP Resource Finance LP as co-lead underwriter on behalf of a syndicate of underwriters in connection with a bought deal public offering of 250,000,000 subscription receipts at an issue price of C$0.90 (approximately $0.63) per Subscription Receipt for total gross proceeds of approximately C$225 million (approximately $155 million). Each Subscription Receipt will entitle the holder to receive, without payment of additional consideration and without further action, one common share of Discovery upon the satisfaction or waiver of certain release conditions, including the satisfaction or waiver of all material conditions precedent to the Transaction, other than the payment of the purchase price (the “Release Conditions“). Discovery has also granted the Underwriters an over-allotment option to purchase up to an additional 25,000,000 Subscription Receipts, representing up to 10% of the base Offering size, at the Issue Price and on the same terms and conditions as the Offering, exercisable in whole or in part, at any time and from time to time, for 30 days following the closing of the Offering. The Offering is expected to close on or about February 3, 2025.
Franco-Nevada has agreed to participate in the Offering to a level of approximately $50 million (approximately C$70 million), and to accept a two-year lock-up arrangement in relation to Discovery common shares received through the Offering.
Directors and officers of Discovery, including Tony Makuch, have agreed to participate in the Public Offering to purchase approximately C$9 million (approximately $6 million) of Subscription Receipts.
The Offering is being made in each of the provinces and territories of Canada other than Québec and Nunavut. The Subscription Receipts have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”), and may not be offered or sold in the United States (as defined in Regulation S under the U.S. Securities Act) except pursuant to exemptions from the registration requirements of the U.S. Securities Act, and similar exemptions under applicable state securities laws. The Subscription Receipts will be offered through those Underwriters or their affiliates who are registered to offer the Subscription Receipts for sale in such jurisdictions and such other registered dealers as may be designated by the Underwriters. Subject to applicable law, the Underwriters may offer the Subscription Receipts outside of Canada and the United States. This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby within the United States or to persons in the United States.
The Subscription Receipts are being offered by way of the Prospectus Supplement to the short form base shelf prospectus dated March 23, 2023, with the Prospectus Supplement providing the full terms related to the Subscription Receipts. Discovery expects to file the Prospectus Supplement with the securities commissions or other similar regulatory authorities in each of the provinces and territories of Canada other than Québec and Nunavut, on January 29, 2025. The issuance of Subscription Receipts (and the Discovery common shares underlying the Subscription Receipts) pursuant to the Offering is subject to the approval of the TSX. The Company has applied to list the Subscription Receipts, the Over-Allotment Subscription Receipts and the common shares issuable to the holders of the Subscription Receipts on the TSX. Listing of such securities will be subject to Discovery fulfilling all of the listing requirements of the TSX.
The gross proceeds from the sale of the Subscription Receipts, less 50% of the Underwriters’ fee that is payable on closing of the Offering, will be deposited and held in escrow by TSX Trust Company, as subscription receipt agent, pending the satisfaction or waiver of the Release Conditions. If the Closing Date does not occur on or before 5:00 p.m. (Eastern time) on June 30, 2025, the Agreement is terminated, or Discovery has announced to the public that it does not intend to proceed with the Transaction, then an amount per Subscription Receipt equal to the Issue Price plus a pro rata share of any earned interest, calculated from the closing of the Offering to the termination time, net of any applicable withholding, will be returned to the holders of the Subscription Receipts.
Discovery has filed the Base Shelf with each of the securities commissions or other similar regulatory authorities in all the provinces and territories in Canada. Before investing in the Public Offering, investors are advised to read the Base Shelf, the Prospectus Supplement and the documents incorporated by reference therein and other documents the Company has filed with Canadian securities regulators for more complete information about the Company and the Offering. Access to the Base Shelf, the Prospectus Supplement and any amendments to such documents is provided in accordance with securities legislation relating to procedures for providing access to a base shelf prospectus, a shelf prospectus supplement and any amendments to such documents. The Base Shelf is, and the Prospectus Supplement will be (within two business days from the date hereof) accessible on Discovery’s issuer profile on SEDAR+ at www.sedarplus.ca. An electronic or paper copy of the Base Shelf, the Prospectus Supplement and any amendments to the documents may be obtained, without charge, via mail at BMO Nesbitt Burns Inc., Brampton Distribution Centre C/O The Data Group of Companies, 9195 Torbram Road, Brampton, Ontario, L6S 6H2, by telephone at 905-791-3151 Ext 4312, or by email at torbramwarehouse@datagroup.ca and by providing a contact with an email address or address, as applicable.
Certain directors, officers and other insiders of the Company are expected to participate in the Public Offering. Each issuance by the Company of Subscription Receipts to a Participating Insider under the Public Offering is considered a “related party transaction” within the meaning of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions. The Company is exempt from the formal valuation and minority shareholder approval requirements under MI 61-101 in reliance on the exemptions set out in sections 5.5(a) and 5.7(1)(a), respectively, of MI 61-101 as the fair market value of such transactions, insofar as they involve related parties, is not more than 25% of the Company’s market capitalization. The Company was not in a position to file a material change report 21 days prior to expected closing of the Public Offering because the terms of the Public Offering and insider participation were not yet established by that time, and Discovery is electing to expedite closing of the Public Offering for sound business reasons.
Discovery Capital Structure
At the completion of the Transaction, and following the execution of all financing agreements, Discovery is expected to have approximately 771 million common shares outstanding, with existing shareholders prior to the Transaction owning approximately 51.9% of the pro forma shares outstanding, excluding any new common shares acquired by existing shareholders via the Offering and assuming no exercise of the over-allotment option.
At the Closing Date, and following the receipt of all cash from the Financing Package, Discovery expects to add approximately C$220 million ($150 million) of cash to the Company’s balance sheet, with the $100 million Debt Facility remaining undrawn and assuming no exercise of the over-allotment option.
ADVISORS AND COUNSEL
SCP and Fort Capital Partners are acting as financial advisors to Discovery, with Bennett Jones LLP acting as legal advisor to the Company in relation to the Transaction and the Public Offering. CIBC World Markets Inc. is acting as financial advisor to the Special Committee (as defined below) of Discovery. Cassels Brock & Blackwell LLP is acting as legal advisors to the Company in relation to the Franco-Nevada Financing.
BOARD OF DIRECTORS APPROVAL
The Transaction has been unanimously approved by Discovery’s Board of Directors following the unanimous recommendation of a special committee of independent directors of the Board on January 26, 2025.
CIBC has provided a fairness opinion to the Special Committee stating that, as of the date of such opinion, and based upon and subject to the assumptions, limitations and qualifications stated in such opinion, the consideration to be paid by Discovery pursuant to the Agreement is fair, from a financial point of view, to the Company.
After considering the Fairness Opinion, the recommendation of the Special Committee, and the advice of its financial and legal advisors, the Board has unanimously determined that the Transaction is in the best interest of Discovery.
ABOUT DISCOVERY
Discovery is a precious metals company engaged in the acquisition, development and operation of high-quality assets. The Company’s first asset is its 100%-owned Cordero project, one of the world’s largest undeveloped silver deposits, which is located close to infrastructure in a prolific mining belt in Chihuahua State, Mexico. The Feasibility Study completed in February 2024 demonstrates that Cordero has the potential to be developed into a large-scale, long-life project that generates attractive economic returns and delivers substantial socio-economic benefits for local stakeholders. In developing and operating the Project, an important priority will be maximizing the use of green energy sources, such as electric vehicles and solar power, with the Company’s objective being to establish Cordero as one of the lowest carbon footprint open-pit mines globally.
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