From The Northern MinerJul 16, 2015 6:36 PM Lake Shore steps into the M&A fray with Temex bid
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2015-07-16
VANCOUVER — Ontario-focused Lake Shore Gold (TSX: LSG; NYSE-MKT: LSG) has been one of the better turn-around stories over the past year, and the company is now looking to put its reinvigorated capital strength towards growth. Lake Shore is investing around $25 million in exploration this year, and on July 16 it shifted into merger-and-acquisitions mode with a $24.5 million all-share bid for explorer Temex Resources (TSXV: TME; US-OTC: TMXRF).
The acquisition would be one of convenience, since Temex holds a 60% interest in the Whitney gold project under a joint venture with Goldcorp (TSX:G; NYSE: GG), and the property sits immediately adjacent to Lake Shore's Bell Creek mine and mill.
Whitney currently hosts roughly 3.2 million measured-and-indicated tonnes grading 6.85 grams gold per tonne for 708,600 contained oz., and 1 million inferred tonnes of 5.34 grams gold for 170,700 contained oz.
Temex also holds a 100% interest in the Juby gold project in the Shining Tree Area of Ontario. Resource estimates at Juby include 26.6 million tonnes averaging 1.28 grams gold for 1.1 million oz. in the indicated category; and 96.2 million tonnes of 0.94 gram gold in the inferred category.
Under the terms of the proposal, Temex shareholders would receive 0.105 of a Lake Shore share, which equates to a value of around 13¢ per Temex share based on the closing price at the time of the offer. Lake Shore president and CEO Tony Makuch noted that the company has "considerable capacity" at Ball Creek, and that adding a resource of Whitney's "quality and quantity" would make "a lot of sense" in terms of growth.
There's just a slight hurdle standing in Lake Shore's path, and that's another prospective bidder. Oban Mining (TSX: OBM) convinced Temex management to propose a five-company merger to shareholders in early June. The deal was backed by Sean Roosen and the Osisko Gold Royalties' (TSX: OR; US-OTC: OKSKF) team, and also included: Eagle Hill Exploration (TSXV: EAG), Ryan Gold (TSXV: RYG) and Corona Gold (TSX: CRG).
In relation to Temex, Oban offered shareholders 0.780 of a share in the newly-merged entity. The offer represented a 35% premium based on Temex's 15-day volume-weighted average share price at the time. By comparison, Lake Shore's is offering a 106% premium relative to the same trading period.
At the time of the Oban offer Temex CEO Ian Campbell said on a conference call that “there was no doubt in our mind that this is exactly the right thing to do and at the right time. [The move] provides liquidity and capital at a time when it’s extremely scarce."
Fast forward roughly four weeks, however, and Temex has labelled the Lake Shore proposal "superior" and informed Oban that it has ten business days to increase its offer.
Lake Shore has invested around $350 million in the Timmins gold camp over the past three years, and made material strides in dropping its operating costs and boosting cash margins.
The company reported cash and bullion valued at around $82 million in early July, and anticipates its all-in sustaining costs should be below US$950 per oz. this year. Over the past six months Lake Shore cranked out around 95,600 oz. and boosted its annual guidance to between 170,000 oz. and 180,000 oz. gold.
The knock against the company, however, has always been a relatively short mine life at Bell Creek and the nearby Timmins West mine. Proven and probable reserves at Bell Creek total roughly 1.8 million tonnes of 4.6 grams gold for 263,600 contained oz., while Timmins West hosts 3.7 million probable tonnes averaging 4.3 grams gold for 510,000 contained oz.
The company maintains additional measured and indicated resources across its Timmins complex at the Vogel, Marlhill, and Gold River targets.
Lake Shore has had recent exploration success at its 144 target area, where it announced a second gold discovery in late June. The company recently announced intercepts from the newly-identified 144 Gap Southwest zone, which were highlighted by 41 metres of 3.3 grams gold in hole 15-115 and 14 metres of 3.22 grams gold in hole 15-125.
Recent interpretations indicated mineralization at 144 Gap is contained within a broad zone of hydrothermal alteration and deformation measuring up to 100 metres wide and closely associated with syenite intrusions, quartz veining, pyrite, scheelite and/or galena and multiple occurrences of visible gold.
BMO Capital Markets analyst Brian Quast questions whether Lake Shore might be better served focusing on its internal asset base versus wading into the acquisition market. BMO Research maintains a stock "underperform" rating on the company along with a $1.15 per share price target.
"About [$24 million] in Lake Shore shares is unlikely to make a material difference in estimates," Quast noted on July 16. "Also, the addition of near-mill ounces at Bell Creek makes sense from an operational perspective. However, it would seem that [the capital] could be used to further develop the current [mine], just as easily as purchasing nearby properties, in BMO's view."
Lake Shore has traded within a 52-week window of 70¢ and $1.40, and jumped around 41% or 35¢ over the past six months en route to a $1.21 per share close at press time. The company maintains 436 million shares outstanding for a $502 million market capitalization.
Shares of Temex jumped around 110% following news of the offer en route to an 11.5¢ close at press time. The company has moved within a 52-week trading range of 4¢ and 12¢, and maintains 187 million shares outstanding for a $23.4 million market capitalization.
Oban had not responded to the counter offer at the time of writing.
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