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Fortuna Silver to acquire Roxgold for $1.1B
2021-04-26 07:22 ET - News Release
Also News Release (C-ROXG) Roxgold Inc (2)
Mr. Jorge Ganoza of Fortuna reports
FORTUNA AND ROXGOLD AGREE TO BUSINESS COMBINATION CREATING A LOW-COST INTERMEDIATE GLOBAL PRECIOUS METALS PRODUCER
Fortuna Silver Mines Inc. and Roxgold Inc. have entered into a definitive agreement whereby Fortuna will acquire all the issued and outstanding securities of Roxgold pursuant to a plan of arrangement.
Under the terms of the transaction, Roxgold shareholders will receive 0.283 common share of Fortuna and 0.1 cent for each Roxgold common share held. Upon completion of the transaction, existing Fortuna and Roxgold shareholders will own approximately 64.3 per cent and 35.7 per cent of the pro forma company, respectively.
The exchange ratio implies a consideration of approximately $2.73 per Roxgold common share based on the closing price of the Fortuna common shares on the Toronto Stock Exchange on April 23, 2021, representing a 42.1-per-cent premium to the closing price of Roxgold on the Toronto Stock Exchange on the same date. Based on the 20-day volume-weighted average price of the Fortuna shares and the Roxgold shares on the TSX for the period ending April 23, 2021, the exchange ratio implies a premium of 40.4 per cent to Roxgold shareholders. The implied fully diluted in-the-money equity value of the transaction is estimated at approximately $1.1-billion.
Transaction highlights:
- Creates a premier growth-oriented global intermediate gold and silver producer, well positioned to pursue compelling organic and inorganic growth opportunities: anticipated annual gold equivalent combined production of approximately 450,000 ounces at AISC (all-in sustaining cost) of approximately $950 (U.S.) per gold equivalent ounce;
- Bringing together two highly experienced management teams with records of value creation in the Americas and in West Africa: Fortuna will benefit from the in-region operating experience of key members of Roxgold's team;
- Diversified, complementary portfolio of four quality operating assets and a development project in prolific jurisdictions: projected pro forma average annual EBITDA (earnings before interest, taxes, depreciation and amortization) of over $500-million (U.S.);
- Attractive near-term free cash flow profile with a robust pipeline of high-upside exploration assets: Boussoura, a gold exploration project with a maiden resource expected in the second half of 20216, over 20 satellite targets identified at Seguela, and an extensive portfolio of early-stage exploration assets in Ivory Coast and Mexico;
- Participation in enlarged company with strong balance sheet, significantly higher liquidity, greater scale and enhanced capital markets relevance: lower cost of capital and stronger balance sheet to finance Seguela construction and Boussoura's development; flexibility to pursue other organic and external growth opportunities;
- Pro forma market capitalization and P/NAV (price to net asset value ratio) multiple puts Fortuna in a stronger position to compete for meaningful assets in the Americas and in West Africa, a rapidly growing and highly prospective mining jurisdiction;
- Silver will continue to be a meaningful contributor to revenue: silver exposure largely in line with silver producer peers. Pro forma, Fortuna will continue to pursue meaningful and accretive silver opportunities.
Jorge A. Ganoza, president and chief executive officer of Fortuna, commented, "With Roxgold we are acquiring a complete business platform, which brings: (i) low-cost gold production; (ii) a permitted feasibility-stage development project; (iii) a robust exploration pipeline; and (iv) key members of a seasoned executive team of proven mine builders, developers and explorers in West Africa." Mr. Ganoza continued, "The combined company will be in a stronger position to continue accelerating the development of the Seguela gold project at a lower cost of capital and aggressively pursuing the potential of a most exciting exploration pipeline in West Africa and Latin America." Mr. Ganoza concluded, "At Fortuna, we have known and followed the success of the Roxgold team for a number of years, from their early start at Yaramoko, and now look forward to working together and continuing to deliver value to our shareholders through the advancement of our assets and discovery."
John Dorward, president and chief executive officer of Roxgold, commented: "This transaction recognizes the commitment and execution of the Roxgold team and the value creation over recent years, as we advanced from developer to low-cost gold producer with a growth pipeline that few of our peers could match. The combination with Fortuna provides our shareholders with an immediate premium and a unique opportunity to participate in the creation of a new global mid-tier precious metals producer with significant organic growth and cash flow generating potential. Further, Fortuna's excellent track record as an operator and mine builder gives us confidence that the combined company will be best positioned to maximize value for all our shareholders."
Benefits to Roxgold shareholders:
- Immediate and significant premium;
- Maintain significant exposure to Roxgold portfolio assets through ownership in Fortuna;
- Enhanced market profile with a pro forma plus-$2-billion (U.S.) market cap and a Toronto Stock Exchange/New York Stock Exchange dual listing;
- Significantly enhanced share trading liquidity;
- Increased scale and stronger acquisition currency to compete for more meaningful assets;
- Additional potential upside based on average analyst Fortuna target price;
- Elective tax-deferred rollover for Canadian shareholders.
Benefits to Fortuna shareholders:
- Accretive transaction on meaningful financial and production metrics;
- Addition of a highly regarded West African mining team provides Fortuna key expertise from day one in a new jurisdiction;
- Yaramoko and Seguela are low-cost assets with low technical complexity contributing meaningfully to growth while reducing overall AISC;
- Seguela, 36,300-hectare concession, has significant near-term exploration potential;
- Extensive portfolio of exploration properties covering over 286,300 hectares in the prolific Birimian gold province provides Fortuna a robust exploration pipeline, which includes the high-grade Boussoura gold project;
- Preserve very strong balance sheet.
Transaction summary
Under the terms of the transaction, Roxgold shareholders will receive 0.283 common share of Fortuna and 0.1 cent in cash for each Roxgold common share held. The transaction will be effected by way of a court-approved plan of arrangement under the British Columbia Business Corporations Act, requiring the approval of at least 66-2/3rds per cent of the votes cast by the shareholders of Roxgold voting in person, virtually or represented by proxy at a special shareholder meeting to consider the transaction. The issuance of Fortuna shares pursuant to the transaction will require approval by a simple majority of the votes cast by the shareholders of Fortuna voting in person, virtually or represented by proxy at a special shareholder meeting to be called to consider, in addition to certain annual meeting matters, the issuance of Fortuna shares pursuant to the requirements of the TSX.
In connection with the transaction, officers and directors of Roxgold collectively holding 3.52 per cent of the total Roxgold shares have entered into voting support agreements with Fortuna, pursuant to which they have agreed, among other things, to vote their Roxgold shares in favour of the transaction. Appian Natural Resources Fund, which is Roxgold's largest shareholder and controls 13.2 per cent of the issued and outstanding Roxgold shares, has also provided its support in favour of the transaction. In addition, officers and directors of Fortuna collectively holding 1.5 per cent of the total Fortuna shares have entered into voting support agreements with Roxgold pursuant to which they have agreed, among other things, to vote their Fortuna shares in favour of the issuance of the Fortuna shares pursuant to the transaction.
In addition to shareholder approval, the transaction is subject to approval by the Supreme Court of British Columbia and the TSX and NYSE and the satisfaction of certain other closing conditions customary in transactions of this nature. The arrangement agreement contains customary provisions including reciprocal non-solicitation, fiduciary-out and right-to-match provisions, as well as a reciprocal $40-million termination fee payable to Fortuna or Roxgold under certain circumstances and, in certain other customary circumstances, reciprocal expense reimbursement of $3-million (U.S.).
Upon completion of the transaction, management of the combined company will feature proven and experienced mining and business leaders at the executive team level, along with diverse, high-performing teams at the combined company's regional and operating sites. Continuing executives at Roxgold are Paul Criddle, chief operating officer -- Africa; Paul Weedon, vice-president, exploration -- Africa; and Eric Gratton, general manager, external relations -- Africa. Full details of the transaction will be included in the respective management information circulars of Fortuna and Roxgold, which will be mailed to shareholders in connection with the respective shareholder meetings. Closing of the transaction is expected by late June or early July, 2021.
Board recommendations
The arrangement agreement has been unanimously approved by the boards of directors of each of Fortuna and Roxgold, including, in the case of Roxgold, following the unanimous recommendation of a special committee of independent directors. Both boards of directors unanimously recommend that their respective shareholders vote in favour of the transaction.
Scotiabank delivered a verbal fairness opinion to the board of directors of Fortuna as to the fairness of the consideration to be paid, stating that, as of the date of such opinion, and based upon and subject to the assumptions, limitations and qualifications, which will be set out in its written fairness opinion to be included in the information circular for the Fortuna shareholders meeting, the consideration payable by Fortuna pursuant to the transaction is fair from a financial point of view to Fortuna.
Each of BMO Capital Markets and Canaccord Genuity Corp. provided the Roxgold special committee and board of directors with a verbal opinion, to the effect that, as of the date of such opinion, subject to the respective assumptions, limitations and qualification set out in such opinion, the exchange ratio under the transaction is fair, from a financial point of view, to holders of Roxgold common shares.
Advisers and counsel
Infor Financial Inc. is acting as financial adviser to Fortuna in connection with the transaction. Scotiabank has acted as financial adviser to the Fortuna board of directors in connection with the transaction. Blake, Cassels & Graydon LLP and Paul Weiss LLP are acting as Fortuna's Canadian and U.S. legal advisers, respectively.
BMO Capital Markets is acting as financial adviser to Roxgold in connection with the transaction. Canaccord Genuity Corp. is acting as financial adviser to the Roxgold special committee and board of directors in connection with the transaction. Davies Ward Phillips & Vineberg LLP is acting as Roxgold's legal adviser.
Conference call
Fortuna and Roxgold will host a joint conference call today, Monday, April 26, 2021, at 11 a.m. Eastern Time, for members of the investment community to discuss the transaction. Call-in information is provided below.
Shareholders, analysts, media and interested investors are invited to listen to the live conference call by logging onto the webcast or by dialling over the phone just prior to the starting time.
Conference call details:
Date: Monday, April 26, 2021
Time: 8 a.m. Pacific Time/11 a.m. Eastern Time
Dial-in number (toll-free): 1-888-506-0062
Dial-in number (international): 1-973-528-0011
Entry code: 755943
Replay number (toll-free): 1-877-481-4010
Replay number (international): 1-919-882-2331
Replay pass code: 41083
Playback of the Fortuna and Roxgold business combination call will be available until Monday, May 10, 2021. Playback of the webcast will be available until Tuesday, April 26, 2022. In addition, a copy of the presentation, a transcript of the call and an audio recording of the conference call will be archived on Fortuna's website and on Roxgold's website.
Fortuna qualified person
Eric Chapman, vice-president of technical services, is a professional geoscientist registered with the Association of Professional Engineers and Geoscientists of the Province of British Columbia (registration No. 36328) and a qualified person as defined by National Instrument 43-101 -- Standards of Disclosure for Mineral Projects. Mr. Chapman has reviewed and approved the scientific and technical information pertaining to Fortuna contained in this news release.
Roxgold qualified person
Paul Criddle, FAusIMM, chief operating officer for Roxgold, a qualified person within the meaning of National Instrument 43-101, has reviewed, verified and approved the technical disclosure pertaining to Roxgold contained in this news release.
About Roxgold Inc.
Roxgold is a Canada-based gold mining company with assets located in West Africa. Roxgold owns and operates the high-grade Yaramoko gold mine located on the Hounde greenstone belt in Burkina Faso and is also advancing the development and exploration of the Seguela gold project located in Ivory Coast.
About Fortuna Silver Mines Inc.
Fortuna Silver Mines is a Canadian precious metals mining company with operations in Peru, Mexico, and Argentina. Sustainability is integral to all the company's operations and relationships. Fortuna produces silver and gold and generates shared value over the long term for its shareholders and stakeholders through efficient production, environmental protection and social responsibility.
We seek Safe Harbor.