Tahoe Resources-Lake Shore Gold $ 945 million deal has potential benefits for both parties


The Tahoe-Lake Shore deal is the first major Canadian mining deal of the year, and there may be more in the near future as the price of gold improves and executives put more emphasis on growth

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TORONTO • Tahoe Resources Inc.’s $ 945 million friendly deal to purchase Lake Shore Gold Corp. is seen as a logical transaction that addresses the challenges facing both companies.


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Tahoe is diversifying into Canada, increasing its growth profile and reducing its exposure to Guatemala, a very demanding jurisdiction. Lake Shore, on the other hand, can develop its projects quickly without worrying about diluting shareholders or taking on more debt.

“We believe this transaction brings strong mutual benefits to our respective shareholders and establishes the leading producer of low-cost precious metals in the Americas,” Kevin McArthur, Managing Director of Tahoe, said on a conference call.

The Tahoe-Lake Shore deal is the first major Canadian mining deal of the year, and there may be more in the near future as the price of gold improves and executives put more emphasis on growth. M&A activity has been curtailed in the precious metals space in recent years, with miners prioritizing cutting costs over increasing production.


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Vancouver-based Tahoe, which spun off from Goldcorp Inc. in 2010, has been one of the most aggressive buyers in the industry. Last year it bought Rio Alto Mining Ltd. to expand its business in Peru, and the share purchase agreement with Toronto-based Lake Shore gives the company a series of mines and projects in the Timmins mining camp in northern Ontario.

Tahoe’s flagship mine is the Escobal mine in Guatemala, which has performed very well but encountered political obstacles and local opposition. He won’t have to deal with those concerns in Timmins, where Lake Shore is also performing well after overcoming some setbacks in recent years.

“The acquisition of Lake Shore Gold would appear perfectly timely as Target’s operations have matured to provide lower cost production that would increase Tahoe’s production base,” said Geordie Mark, analyst at Haywood Securities, in a note.


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Lake Shore wants to invest in its growth projects and increase production in Timmins. But its balance sheet is limited, with $ 103 million in bonds maturing in September 2017. To expand these projects quickly, chief executive Tony Makuch said the company would need to issue equity or take on more debt, which could be negative for shareholders. .

“We were a little short of blood,” he said in an interview. “We knew we had good things to build, but we knew we were going to have to take our time. “

He believes a combined Tahoe-Lake Shore will be in a better position to move forward with these projects. He will have a much stronger record than Lake Shore alone.

Makuch will become president of Tahoe’s Canadian operations, essentially continuing his current job of managing the Timmins properties. Lake Shore chairman Alan Moon will also join Tahoe’s board of directors once the deal closes.


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One potential downside for Lake Shore shareholders is that the company’s risk profile increases dramatically with this transaction due to exposure to Guatemala. But Makuch said he believes investor concerns about the country are overblown.

TD Securities analyst Daniel Earle said operations in Guatemala will represent 58 percent of the combined company’s net asset value. Canada will represent 25 percent and Peru 17 percent.

He noted that the deal will also increase Tahoe’s gold weighting, given that Escobal is primarily a silver mine. Gold, which topped US $ 1,200 an ounce on Monday for the first time since last June, has outperformed silver in recent years.

A rival bid is a possibility, but is considered unlikely by most observers. Mining executives have been reluctant to engage in bidding wars for assets in a tough gold price environment.

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