Currency in USD
Last close As at 09/06/2023
USD51.55
▲ 0.80 (1.58%)
Market capitalisation
USD25,368m
Research: Metals & Mining
On 28 September, Agnico Eagle Mines (AEM) announced that it is to combine with Kirkland Lake Gold (KL) in a merger of equals. Under the terms of the agreement, KL shareholders will receive 0.7935 AEM shares per KL share, which represents a c 1% price premium to KL’s 10-day volume weighted average price on the TSX. Upon closing, existing AEM and KL shareholders will own c 54% and 46%, respectively, of a combined company (called Agnico Eagle Mines Ltd) with a market capitalisation of c C$29.0bn (US$22.9bn). The merger has been unanimously approved by both boards of directors.
Agnico Eagle Mines |
Creating a Canadian champion
Metals & mining |
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29 September 2021 |
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Agnico Eagle Mines is a client of Edison Investment Research Limited |
On 28 September, Agnico Eagle Mines (AEM) announced that it is to combine with Kirkland Lake Gold (KL) in a merger of equals. Under the terms of the agreement, KL shareholders will receive 0.7935 AEM shares per KL share, which represents a c 1% price premium to KL’s 10-day volume weighted average price on the TSX. Upon closing, existing AEM and KL shareholders will own c 54% and 46%, respectively, of a combined company (called Agnico Eagle Mines Ltd) with a market capitalisation of c C$29.0bn (US$22.9bn). The merger has been unanimously approved by both boards of directors.
Concentrating in low-risk jurisdictions
The merger will create a company with 12 mines in four countries, with 3.4Moz of production pa, 48Moz of reserves, 40Moz of measured and indicated resources and a further 32Moz of inferred resources. It will also catapult Agnico from being the seventh largest listed gold producer, globally, to the third largest, with 75% of its production and 85% of its reserves located in Canada. As such, the new AEM will easily be Canada’s largest producer of gold, as well as substantially consolidating the landholdings in the Abitibi greenstone belt. Of the top five western producers of gold, AEM estimates that it will have the lowest all-in sustaining cost (US$905/oz), the second highest EBITDA margin (both before synergies of US$2bn expected to be realised over 10 years) and the third largest market capitalisation. Pro forma 2021 net debt is estimated at 0.16x EBITDA. Since 2020, the combined entity has returned US$1.6bn to shareholders in dividends and share buy backs.
Projecting soft power
The boards of both companies are like-minded with similar strategies and a focus on per share measures of growth. AEM’s new board will be downsized to consist of seven directors from the current AEM plus six from KL. Ammar Al-Joundi will remain president of the merged entity, while Sean Boyd will become executive chairman and Tony Makuch of KL will become group CEO. It will also be an immediate leader in ESG, with among the lowest energy intensity, greenhouse gas emissions and water consumption figures per ounce of gold produced in the industry.
Valuation: Merger accretive to Agnico
Consensus estimates have been increasing for revenue and EPS for AEM since Q2, but declining for PBT. Otherwise, over 12 measures of value (P/E, P/CF, EV/EBITDA and yield over three years), AEM is at a premium to KL on seven and a discount on five, indicating that the merger will, on balance, be accretive to AEM.
Consensus estimates
Source: Company sources, Refinitiv. Note: PBT and EPS are normalised, excluding exceptional items. |
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