UK mining company Avocet Mining PLC yesterday said it offered to buy Norwegian peer Wega Mining ASA for $78 million in shares, in a deal that will more then double its annual gold production.
Avocet said it entered a legally binding agreement with Wega to acquire it for 0.23 Avocet shares for every Wega share, valuing it at $78.4 million and representing a 22.3 per cent premium to Wega's closing share price as on 8 April.
Avocet has existing mining interests in Indonesia and Malaysia and is focused on expansion in South East Asia. It has two operating gold mines and a new mine in the making, with a pipeline of exploration projects.
On the other and, Wega Mining ASA is focused on developing and operating gold mines in Africa and says it has achieved the first steps in its goal to produce 500,000 ounces of gold per year.
Wega's newest gold mine, Inata, in northern Burkina Faso, West Africa, will produce gold at an average annual rate of 136,000 ounces for a minimum seven years when it is brought into production in June - July 2009. Inata's current resources at are 1,694,000 ounces of gold and the current reserves at Inata stand at 944,000 ounces.
The Inata Gold Project is Wega Mining's largest gold resource and was the predominant reason for the acquisition of Toronto-based Goldbelt Resources in December 2007.
The combined group will have three operating gold mines from the third quarter -- Inata and Avocet's Penjom and North Lanut mines in Malaysia and Indonesia respectively.
The purchase will raise Avocet's attributable reserves about 146 per cent to 1.4 million ounces and attributable resources, including reserves, by 91 percent to 4.5 million ounces.
About $56 million of the project finance facility has been drawn to date, together with hedging arrangements where 350,000 ounces of gold have been forward sold over 54 months at an average price of $958/oz.
"The acquisition of Wega provides Avocet with an immediate opportunity to more than double its production and resources in the short term," Avocet said. Annual production will be 280,000 ounces of gold by the end of 2011, it said. Wega's board has recommended the deal.
Also Tuesday, Avocet said it subscribed for 61.4 million new Wega shares for $5 million, giving it a 15.7 per cent stake in the company, and agreed to lend it $25 million in interim funding through the issue of a loan note convertible into Wega shares. This money would be used for completion of Wega's 90 per cent owned Inata Gold Project in Burkina Faso.