Orla Mining buying Musselwhite gold mine from Newmont for up to US$850-million

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Canada’s Orla Mining Ltd.OLA-T is buying the Musselwhite gold mine in Ontario from Newmont Corp. NGT-T for up to US$850-million as mergers and acquisitions activity starts to heat up with bullion prices near record highs.

Vancouver-based Orla on Monday said it intends to pay US$810-million in cash to Newmont and up to US$40-million more contingent on gold trading above certain price levels over the next two years to acquire Musselwhite.

Denver-based Newmont, which is the world’s biggest gold miner, is selling Musselwhite as part of its strategy to unload its non-core assets. Newmont inherited the mine as part of its US$10-billion acquisition of Canada’s Goldcorp Inc. in 2019.

The purchase of Musselwhite will see Orla’s annual gold production more than double to above 300,000 ounces. Camino Rojo in Mexico is the company’s only operating mine, so Musselwhite should reduce risk by diversifying the company. Camino Rojo, like Musselwhite, was also formerly a Goldcorp asset, and Orla bought it in 2017.

The Musselwhite underground mine is located on the shore of Opapimiskan Lake, roughly 500 kilometres north of Thunder Bay. In operation since 1997, it has produced almost six million ounces of gold. As of the end of last year, it held 1.5 million ounces of gold reserves. Based on an engineering report commissioned by Orla, the mine has seven years of life remaining with predicted average annual production of 202,000 ounces. Orla intends to invest US$405-million in capital through to 2032 into Musselwhite.

Jason Simpson, chief executive of Orla, said in an interview that the company had been working on the transaction for more than six months, and it wasn’t the only bidder.

“It was competitive,” he said. “Newmont through BMO ran a very comprehensive process.”

Orla intends to pay for the acquisition of Musselwhite through a combination of cash, debt, a convertible note issuance and a gold prepay facility that would see it receive cash in exchange for a certain amount of future gold production.

Among Orla’s biggest shareholders are Pierre Lassonde, co-founder of Franco-Nevada Corp., and Prem Watsa’s Fairfax Financial Holdings Ltd. Mr. Lassonde and Fairfax are both buying convertible notes as part of the financing package. The notes will pay an interest rate of 4.5 per cent per annum and mature after five years. They are convertible to Orla stock at $7.90 a share, which is 42 per cent above last Friday’s closing price.

“While a bold move, we think Musselwhite is the right fit for Orla at a reasonable price,” Michael Siperco, analyst with RBC Dominion Securities Inc., wrote in a note to clients on Monday.

Shares in Orla rose by 8 per cent to close at $5.99 apiece Monday on the Toronto Stock Exchange.

Gold on Monday traded around US$2,600 an ounce, about US$180 below a record reached last month. Bullion prices surged earlier in the year amid declining interest rates and uncertainty over the outcome of the U.S. presidential election. Investors view gold as a safe-haven investment, and it tends to perform better in a falling rate environment.

The elevated commodity price has spurred some M&A, but nowhere near the avalanche of deal-making that occurred in the mid- to late 2000s. Newmont in September announced the sale of its Telfer operation and its 70-per-cent share in Havieron, both located in Australia, to Greatland Gold PLC for up to US$475-million. South Africa’s Gold Fields Ltd. in August announced the purchase of Canada’s Osisko Mining Inc. for $2.16-billion.

“The M&A landscape is still very selective,” Mr. Simpson said. “What we’re seeing is sensible transactions that make strategic sense to the companies doing the acquiring at price points that are accretive. And as long as that sort of responsible consolidation of our industry occurs, I think it should continue.”

The late-2000s-era deal-making was characterized by gold miners paying huge premiums for assets and subsequently taking billions in writedowns when the commodity price crashed. While Newmont has been acquisitive in the past few years, buying Australia’s Newcrest Mining Ltd. in a blockbuster US$16.8-billion transaction in 2023, some of its peers have sat on the sidelines.

Barrick Gold Corp. hasn’t made a major acquisition since its US$6-billion 2019 purchase of Randgold Resources Ltd. CEO Mark Bristow has repeatedly said over the past few years that he prefers internal growth over what he characterizes as value-destructive M&A.