In a Dec. 17 research note, Haywood analyst Kerry Smith purported that Equinox Gold Corp.'s (EQX:TSX.V) acquisition of Leagold Mining is "a good transaction at a good price" and recommended accumulating shares.
Smith outlined the deal. With the transaction, Leagold shareholders will receive 0.331 of an Equinox share, or CA$2.70, per Leagold common share based on the closing price on Friday, Dec. 13.
When the transaction closes, expected in Q1/20, existing Equinox shareholders will hold 55% of the shares outstanding and Leagold shareholders will hold 45% of the pro forma company.
"We like this deal," Smith commented. "It builds scale, improves per share metrics and delivers more liquidity for shareholders, which should lead to improved multiples over time and likely also inclusion in the GDX and GDXJ."
Smith highlighted that with the combined assets, Equinox will achieve its gold production goal of 1 million ounces (1 Moz) well ahead of its 2023 target. With a total of six operating mines, in the U.S., Mexico and Brazil, and another, Castle Mountain in California, under construction and slated to start up in 2020, production in 2020 is expected to total about 700,000 ounces and in 2021, hit the 1 Moz target.
"This transaction moves the company up to midtier status," the analyst added.
Estimated cash flow from all of the combined operations in 2020 is US$300 million, according to consensus.
Another positive note to the story is that Equinox already has the funding in place for the transaction, Smith noted. It includes US$670 million financing package: a bank facility for US$500 million, US$40 million from Equinox Board Chairman Ross Beaty and US$130 million from Mubadala Investment Co. Accordingly, following the merger the company will have about US$270 million in cash.
Finally, the new Equinox will boast an "all-star cast," Smith pointed out. Along with Beaty as the board chairman, Neil Woodyer will be the CEO. Christian Milau will serve as executive vice president corporate, Attie Roux will hold the chief operating officer position and Peter Hardie will be the chief financial officer. The board of directors will consist of eight individuals, four from each of the two companies.
"Equinox has taken a bold step, announcing a merger of equals," Smith concluded. It is a "well-planned and accretive acquisition."
Haywood has a Buy rating and a CA$13.75 per share target price on Equinox. The stock is now trading at about CA$9.28 per share.
Read what other experts are saying about:
Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Newrange Gold Corp. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this interview, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Newrange Gold Corp., a company mentioned in this article.
