Goldcorp acquires Probe Mines

20 Jan 2015

Canada's Goldcorp Inc, one of the world's biggest gold miners, yesterday struck a deal to buy junior miner Probe Mines Ltd for approximately C$526 million ($440 million) in an all-stock deal, aiming to expand its presence in one of its core districts in Ontario.

Under the terms of the friendly takeover, Goldcorp will exchange each outstanding share of Probe for 0.1755 shares of Goldcorp. Based on Goldcorp's closing price of C$27.93 in Toronto on 16 January, the transaction values each Probe share at C$5, representing a 49-per cent premium to its closing price on that day, the miner said in a statement.

Further to the announcement of the deal, shares in Probe surged 50 per cent to $5.06, while Goldcorp stock ended 0.6 per cent higher at $28.67 yesterday in Toronto.

Goldcorp which currently owns 9.3-per cent stake in Probe will issue approximately 17 million new shares under the deal.

In addition to the Goldcorp shares, Probe shareholders will get an interest in a new exploration company comprising Probe's assets in the Ring of Fire in Northern Ontario and also C$15 million in cash and certain other assets currently owned by Probe.

Goldcorp's president and CEO Chuck Jeannes said, ''This transaction is consistent with Goldcorp's longstanding strategy of securing growth opportunities in and around our existing districts with a focus on low-cost, high-quality gold production.''

Probe's main asset is its Borden gold project near Chapleau in Ontario, about 160 km west of Goldcorp's Porcupine mine. The mine has indicated underground resource of 1.6 million ounces of gold at 5.39 grams per tonne and additional inferred resource of 0.4 million ounces at 4.37 grams per tonne.

''Goldcorp in uniquely suited to add Borden to its asset portfolio due to its proximity to our Porcupine operation, which includes the large milling facility at the Dome complex,'' Jeannes said.

With the acquisition of Probe, Goldcorp is looking to cut capital costs and achieve quicker development of resources.

The transaction, approved by the boards of both the companies, is expected to close by the end of March subject to regulatory approvals and customary closing conditions.

A break-fee provision of C$18.4 million is included in the deal, which is payable by Probe to Goldcorp in the event the transaction is not completed under certain circumstances.

Vancouver-based Goldcorp is one of the world's fastest growing gold producers. The company's low-cost gold production is located in safe jurisdictions in the Americas. Its operating assets include four mines in Canada and the US, three mines in Mexico and three in central and South America..

Last week the miner agreed to sell its Wharf mine in South Dakota to Coeur Mining Inc for $105 million and also warned that it would incur a hefty impairment charge of up to $2.7 billion on its Cerro Negro gold mine in Argentina.

''In combination with the recently-announced sale of Wharf mine, this strategic acquisition is the latest example of out commitment to upgrading the quality of Goldcorp's overall asset portfolio,'' Jeannes said.

Earlier in April, Goldcorp lost its battle to acquire Canada's Osisko Mining, owner of one of the world's largest gold mines, to Yamana Gold and Agnico Eagle. (See: Canada's Osisko Mining clinches $3.6-bn deal with Yamana Gold and Agnico Eagle).

Spot prices on gold has fallen around 34 per cent from its all-time peak of around $1921 an ounce in September 2011 to around $1276 yesterday.

Going ahead, on the back of strong dollar and weak oil, analysts expect a significant uplift in margins of gold miners.

GMP Securities L.P acted as the financial advisor to Goldcorp in the deal, while Probe is advised by BMO Capital Markets.