Kirkland Lake to Spend C$4.9 Billion in Detour Gold Acquisition

International miner Kirkland Lake Gold (TSX:KL,NYSE:KL,ASX:KLA) will fork over C$4.9 billion to acquire Canadian producer Detour Gold’s (TSX:DGC,OTC Pink:DRGDF) cornerstone asset the Detour Lake mine in Ontario.

The merger will help Kirkland retain its position as one of the largest gold producers globally with annual output of 1.5 million ounces per year.

Kirkland will spend just under C$5 billion in the all-share deal that will add the “long life asset” to its Ontario project roster, which also includes the Macassa and Fosterville mines.

Despite being low grade, Detour Lake is one of Canada’s most prolific producers, with annual output hitting 621,000 ounces in 2018.

“We have already taken two mining operations, Macassa and Fosterville, and transformed them into high-quality assets that generate industry-leading earnings and free cash flow,” said Tony Makuch, CEO and president of Kirkland Gold. “The addition of Detour Lake provides an opportunity to add a third cornerstone asset that is located in our back yard in Northern Ontario.”

Aside from the long-life mine and the favorable jurisdiction, Makuch also noted the exploration potential offered by the acquisition. Detour’s land package covers 1,040 square kilometers within Ontario’s Abitibi gold mining region.

“The deal leverages Kirkland’s excellent stock performance (it’s up over 800 percent in the past three years) to acquire an asset that addresses Kirkland’s reserve concerns,” Gerardo Del Real of the Outsider Club told the Investing News Network.

Purchasing the Detour asset will also add 15.4 million ounces to Kirkland’s reserve base and extend the gold miner’s reserve life index by eight years.

“For Detour shareholders the deal allows for cost cuts that could total approximately C$75 to C$100 million per year, according to the companies,” said Del Real. “That’s money that can be used in part for aggressive exploration of the extensive land package.” 

Kirkland Lake will initiate a planned drill program, which will help to identify any new resource zones.

Detour shareholders will also gain access to Kirkland’s diversified portfolio of assets in Canada and Australia.

“Our significant mineral resource base, exploration potential, and long-life production profile are a great addition to the Kirkland Lake Gold portfolio,” said Mick McMullen, Detour CEO. “Kirkland Lake Gold’s strong balance sheet and cash generating capabilities will support additional investment in the exploration of Detour Lake to help unlock further growth potential.”

Adrian Day of Adrian Day Asset Management pointed out that Detour had been “under siege for some time,” relating to underperformance, which ironically seemed to be on the turnaround according to the most recent quarterly report.

“For Detour, it ends the ongoing distraction of hostile shareholders, brings in proven operators, and puts it inside a company with a low cost structure. For Kirkland, it enables it to grow in a good jurisdiction, and acquire a large mine at a reasonable price,” said Day.

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