Author: Niall McGee

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.

Teck Resources Ltd. is cutting its full year forecast yet again owing to setbacks at multiple mines, including at its giant QB2 copper operation in Chile.

Vancouver-based Teck said on Thursday that its full year copper production will come in at between 420,000 tonnes and 455,000 tonnes this year, about 6.5 per cent lower than predicted. The downgrade was driven in part by haul truck issues at its Highland Valley mine in British Columbia, including labour availability and issues with its autonomous system. Teck also cut its guidance for the QB2 mine in Chile, reducing its forecast by 6 per cent to roughly 205,000 tonnes.

Teck in the summer had already cut its 2024 copper forecast by 7 per cent owing in part to geotechnical challenges at QB2.

QB2 has been pitched to investors as the anchor mine for the newly revamped critical minerals-focused Teck after the recent sale of its coal business. But QB2 has been a disappointment with major cost overruns during construction and now myriad problems with the ramp up.

Teck on Thursday reduced its 2025 outlook for QB2 by 12 per cent as it encounters equipment reliability issues and challenges regarding ore recoveries.

In a note to clients, RBC Dominion Securities Inc. analyst Sam Crittenden said the guidance downgrades at Teck “cast a shadow on the first quarter in the post-coal era.”

Shares in Teck fell by more than 6 per cent in early trading on the Toronto Stock Exchange on Thursday.

Teck in July closed the sale of 77 per cent of its metallurgical coal business to Glencore PLC of Switzerland for US$7.3-billon.  Teck had already sold the other 23 per cent to Japan’s Nippon Steel and South Korea’s POSCO. The sale of the dirty coal business has allowed Teck to reduce its debt significantly and given it increased firepower to buy back stock to boost its share price. But the company continues to be plagued by issues at QB2.

Teck put the copper mine in the high mountains of northern Chile into production last year after a difficult construction period. Commissioned in 2018, its construction costs were revised upward multiple times, as Teck dealt with myriad issues, including engineering setbacks, COVID-19-induced inflation, and challenges in building some of the port’s infrastructure. QB2′s costs eventually spiralled to about US$8.7-billion, or 85 per cent higher than predicted.

The company in July said it was experiencing grade problems at QB2 because of geotechnical issues and pit dewatering. Teck on Thursday said that the geotechnical issues have stabilized.