Scotia Capital said Friday it is backing
Rio Alto Mining Ltd.’s (
TSX: T.RIO,
Stock Forum) friendly plan to merge with
Sulliden Gold Corp. Ltd. (
TSX: T.SUE,
Stock Forum).
Rio Alto is focused on the development of the 21,000-hectare La Arena gold/copper project in north central Peru.
“We view the proposed acquisition of Sulliden for its development stage Shahuindo gold-oxide project located 30 kilometres Rio’s La Arena operations positively,’’ said Scotia analyst Mark Turner in a research report.
Turner said he proposed acquisition, in Scotia’s view, addresses several concerns we believe have been overhanging Rio stock, primarily:
- The relatively short oxide reserve life of six years at La Arena.
- Pessimism towards gold oxide cash flows being spent on the Phase 11 development stage copper-gold project.
“We believe Shahuindo’s close proximity to Rio’s la Arena gold oxide operations, in combination with Rio’s excellent track record with the La Arena operation, offers opportunity for meaningful synergies to be realized during the development and operations of Shahuindo,’’ Turner wrote in the Scotia report.
“We maintain our (sector perform) rating and $3 per share target price [for Rio Alto].”
Under the merger deal, Rio is to acquire all the outstanding shares of Sulliden for 0.525 of a Rio common share. The deal values Sulliden at $1.22 per share ($325 million), including 9 cents for a proposed new entity (SpinCo), which is being set up to hold the East Sullivan property in Val d’Or, Quebec and will be capitalized with $25 million in cash or $15 million in cash and $10 million worth of Rio shares.
The agreement includes a reciprocal termination fee of $15 million and cost reimbursement fee of $2 million, payable by one party to the other in certain circumstances if the transaction is not completed.
Rio Alto shares eased 4% to $1.98 on Friday, leaving a market cap of $350 million, based on 177 million shares outstanding. The 52-week range is $3.21 and $1.33.
Sulliden shares eased 5.4% to $1.06, leaving a market cap of $333.4 million, based on 314.5 million shares outstanding. The 52-week range is $1.17 or 60 cents.