Kirkland Lake Gold Ltd. (“
Kirkland Lake
Gold”, the “
Company” or
“
KL”) (TSX:KL) (NYSE:KL) (ASX:KLA) and Detour Gold
Corporation (TSX: DGC) (“
Detour Gold”) are pleased
to announce that they have entered into a definitive agreement (the
“
Arrangement Agreement”) whereby Kirkland Lake
Gold will acquire all of the issued and outstanding securities of
Detour Gold pursuant to a plan of arrangement (the
“
Transaction”).
Under the terms of the Transaction, all of the
issued and outstanding common shares of Detour Gold will be
exchanged at a ratio of 0.4343 of a Kirkland Lake Gold common share
for each Detour Gold common share. Upon completion of the
Transaction, existing Kirkland Lake Gold and Detour Gold
shareholders will own approximately 73% and 27% of the pro forma
company, respectively.
The exchange ratio implies consideration of
C$27.50 per Detour Gold common share based on the closing price of
the Kirkland Lake Gold common shares on the Toronto Stock Exchange
(“TSX”) on November 22, 2019, representing a 24%
premium to the closing price of the Detour Gold shares on the TSX
on November 22, 2019. Based on the 20-day volume weighted average
price of the Kirkland Lake Gold shares and the Detour Gold shares
on the TSX for the period ending November 22, 2019, the exchange
ratio implies a premium of 29% to Detour Gold shareholders. The
implied equity value of the Transaction is equal to approximately
C$4.9 billion.
TRANSACTION HIGHLIGHTS
- Adds a Long-Life, High-Quality Asset in a Low-Risk
Jurisdiction: Detour Lake is a uniquely large-scale,
long-life Canadian mine, with current production of ~600 koz per
year and substantial growth potential.
- Solidifies Kirkland Lake Gold’s Position as a Senior
Gold Producer with Industry-Leading Free Cash Flow:
Enhanced scale with pro forma 2019 production targeted at +1.5 Moz
and analyst consensus 2019 free cash flow of almost US$700
million.
- Bolsters Financial Strength and Capital Markets
Profile: Combined net cash balance of US$630 million (as
at September 30, 2019), with increased public float, liquidity, and
access to capital, provides greater capacity to pursue further
growth and return capital to shareholders.
- Increases Kirkland Lake Gold’s Mineral Reserve Base and
Complements Existing Operating Profile: Transaction adds
15.41 Moz to Kirkland Lake Gold’s mineral reserve base and extends
reserve life index2 by 8 years.
- Enables Value-Creation through Continued Optimization
and Potential Expansion of Detour Lake: Financial strength
and technical expertise of the combined company is expected to
support the continued optimization and potential expansion of
Detour Lake; opportunities exist to significantly increase
production at improved unit costs and to expand current mineral
reserves and mineral resources.
- Provides Attractive Exploration Upside: Detour
Gold’s land position covers 1,040 km2 along northernmost sections
of the prolific Abitibi Greenstone Belt (including 646 km2 on
existing Detour Lake property); combination of free cash flow
generating operations, significant in-mine growth potential, and
considerable regional exploration upside is a common feature among
Detour Lake and Macassa in Canada and Fosterville in
Australia.
- Potential to Deliver Synergies: Expected
pre-tax synergies of approximately US$75 – US$100 million per
year.
Tony Makuch, President and Chief Executive
Officer of Kirkland Lake Gold, commented: “The acquisition of
Detour Gold is an excellent fit for Kirkland Lake Gold. 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. The addition of
Detour Lake provides an opportunity to add a third cornerstone
asset that is located in our back yard in Northern Ontario. Detour
Lake will provide the pro forma company with a 20-plus year mine
life which provides unparalleled optionality and excellent growth
potential for the benefit of all shareholders. The management team
at Detour Gold has done an exceptional job in making improvements
and building momentum at the mine. Once the Transaction is
completed, we will continue efforts to optimize current operations
and commence engineering work to evaluate expansion opportunities
at Detour Lake, which we anticipate could lead to significant
production growth, improved unit costs and higher levels of mineral
reserves and mineral resources.
“Turning to exploration, we are planning
extensive drilling at highly prospective exploration targets within
the 1,040 km2 Detour Gold land position, where we believe there is
considerable potential for new discoveries to support future
mineral resource growth. The work we are planning around Detour
Lake will be a key component of our corporate exploration program
going forward. Other anticipated components of this program include
ongoing drilling at Macassa to grow the South Mine Complex and
identifying high-grade gold zones along the Amalgamated Break, as
well as continued extensive exploration at Fosterville and Northern
Territory.”
Mick McMullen, President and Chief Executive
Officer of Detour Gold, commented: “This Transaction recognizes the
improvements we have made to re-engineer Detour Gold’s operations
and business practices, while providing our shareholders with an
immediate premium and a unique opportunity to gain exposure to a
diversified portfolio of low-cost, high-grade mines in prolific and
low-risk mining jurisdictions. Our significant mineral resource
base, exploration potential, and long-life production profile are a
great addition to the Kirkland Lake Gold portfolio, and we are
excited that we can share in the growth opportunities that exist
going forward. Importantly, 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.”
BENEFITS TO DETOUR GOLD
SHAREHOLDERS
- Provides an immediate and significant premium of 29% based on
the 20-day volume weighted average price of the Kirkland Lake Gold
shares and Detour Gold shares on the TSX for the period ending
November 22, 2019, and 24% to the closing price of the Detour Gold
shares of C$22.21 per share on the TSX on November 22, 2019.
- Diversifies portfolio and eliminates single asset risk, while
maintaining exposure to Detour Lake and provides opportunity to
participate in future upside through Kirkland Lake Gold’s continued
optimization, and potential expansion, of Detour Lake, and its plan
to extensively explore the 1,040 km2 Detour Gold land
position.
- Provides exposure to Kirkland Lake Gold’s high-quality
portfolio of low-cost, high-grade mines, in low-risk jurisdictions
with further upside from district-scale exploration potential and
organic mineral reserve growth.
- Significantly enhances financial strength, free cash flow
generation, and trading liquidity for Detour Gold
shareholders.
- Allows Detour Gold shareholders to participate in Kirkland Lake
Gold’s capital return program, including its attractive quarterly
dividend, currently set at US$0.06 per share, and its ongoing
normal course issuer bid.
- Participation in the potential synergies identified by Kirkland
Lake Gold.
BENEFITS TO KIRKLAND LAKE GOLD
SHAREHOLDERS
- Addition of a third cornerstone asset with ~600 koz current
production and potential for significant growth.
- Enhances financial strength with combined net cash of US$630
million (as at September 30, 2019), and analyst consensus 2019 free
cash flow of almost US$700 million from assets in Australia and
Canada.
- Grows mineral reserves via addition of 15.41 Moz to mineral
reserves base, while growing mineral reserve life index2 by 8
years.
- Opportunity for value creation through continued optimization
and expansion of current production, mineral reserves and mineral
resources, and mine life at Detour Lake.
- Provides attractive exploration upside from highly prospective
targets on the 1,040 km2 Detour Gold land position within the
prolific Abitibi Greenstone Belt.
- Expected to deliver immediate cash flow per share and net asset
value per share accretion.
- Potential to realize expected pre-tax synergies of
approximately US$75 – US$100 million per year.
TRANSACTION SUMMARY
The Transaction will be effected by way of a
court-approved plan of arrangement under the Canada Business
Corporations Act, requiring the approval of at least 66 2/3% of the
votes cast by the shareholders of Detour Gold voting in person or
represented by proxy at a special shareholders’ meeting to consider
the Transaction. The issuance of shares by Kirkland Lake Gold in
connection with the Transaction is subject to the approval of a
majority of the votes cast by the shareholders of Kirkland Lake
Gold voting in person or represented by proxy at a special
shareholders’ meeting.
Officers and directors of Kirkland Lake Gold
have entered into voting support agreements pursuant to which they
have agreed, among other things, to vote their Kirkland Lake Gold
shares in favour of the Transaction. Officers and directors of
Detour Gold have entered into voting support agreements pursuant to
which they have agreed, among other things, to vote their Detour
Gold shares in favour of the Transaction.
In addition to shareholder and court approvals,
the Transaction is subject to applicable regulatory approvals
including, but not limited to, TSX approval and approval under the
Competition Act (Canada) and the satisfaction of certain other
closing conditions customary in transactions of this nature. The
Arrangement Agreement contains customary provisions including
reciprocal non-solicitation, “fiduciary out” and “right to match”
provisions, as well as a US$148 million termination fee payable to
Kirkland Lake Gold under certain circumstances and a US$202 million
termination fee payable to Detour Gold under certain
circumstances.
Upon completion of the Transaction, management
of the combined company will feature proven and experienced mining
and business leaders at both the Board of Directors and executive
team levels, along with diverse, high-performing teams at the
combined company's regional and operating sites. Full details of
the Transaction will be included in the respective management
information circulars of Kirkland Lake Gold and Detour Gold,
expected to be mailed to shareholders in December 2019. Both
shareholder meetings and closing of the Transaction are expected by
the end of January 2020.
BOARDS OF DIRECTORS’
RECOMMENDATIONS
The Arrangement Agreement has been unanimously
approved by the Board of Directors of each of Kirkland Lake Gold
and Detour Gold, including, in the case of Detour Gold, following
the unanimous recommendation of a special committee of independent
directors of Detour Gold. Both Boards of Directors unanimously
recommend that their respective shareholders vote in favour of the
Transaction.
RBC Capital Markets has provided a fairness
opinion to the Board of Directors of Kirkland Lake Gold stating
that, as of the date of such opinion, and based upon and subject to
the assumptions, limitations and qualifications stated in such
opinion, the consideration to be paid under the Transaction is
fair, from a financial point of view, to Kirkland Lake Gold.
Each of BMO Capital Markets and Citi provided
the Detour Gold special committee and Board of Directors with an
opinion, dated November 24, 2019, to the effect that, as of the
date of such opinion, the consideration provided for in the
Transaction was fair, from a financial point of view to holders of
Detour Gold common shares (other than, as applicable, Kirkland Lake
Gold and its affiliates), in each case, based upon and subject to
the respective assumptions, limitations, qualifications and other
matters set forth in such opinions.
None of the securities to be issued pursuant to
the Transaction have been or will be registered under the United
States Securities Act of 1933, as amended (the “U.S.
Securities Act”), or any state securities laws, and any
securities issuable in the Transaction are anticipated to be issued
in reliance upon available exemptions from such registration
requirements pursuant to Section 3(a)(10) of the U.S. Securities
Act and applicable exemptions under state securities laws. This
press release does not constitute an offer to sell or the
solicitation of an offer to buy any securities.
ADVISORS AND COUNSEL
RBC Capital Markets is acting as financial
advisor to Kirkland Lake Gold and Cassels Brock & Blackwell LLP
and Dorsey Whitney LLP are acting as Kirkland Lake Gold’s legal
advisors.
BMO Capital Markets is acting as financial
advisor to Detour Gold in connection with the Transaction. Citi has
acted as financial advisor to the Detour Gold special committee in
connection with the Transaction. Stikeman Elliott LLP, Jones Day
and Squire Patton Boggs are acting as Detour Gold’s legal
advisors.
CONFERENCE CALL
Kirkland Lake Gold and Detour Gold will host a
joint conference call today, Monday, November 25, 2019, at 8:30 am
ET, for members of the investment community to discuss the
Transaction. Call-in information is provided below. The call will
also be webcast and accessible on the Kirkland Lake Gold and Detour
Gold websites at www.klgold.com and www.detourgold.com,
respectively.
DATE: |
Monday, November 25, 2019 |
CONFERENCE ID: |
9195953 |
TIME: |
8:30 AM ET |
TOLL-FREE NUMBER: |
(833) 241-7254 |
INTERNATIONAL CALLERS: |
(647) 689-4218 |
Webcast url |
https://event.on24.com/wcc/r/2146218/D076E13FBEDE653179540D11E1D94A87 |
A copy of the investor presentation is also
available, and an audio recording of the conference call will be
made available shortly after the call, on the Kirkland Lake Gold
and Detour Gold websites.
About Kirkland Lake Gold
Ltd.Kirkland Lake Gold Ltd. is a growing gold producer
operating in Canada and Australia that produced 723,701 ounces in
2018 and is on track to achieve significant production growth over
the next three years, including target production of 950,000 –
1,000,000 ounces in 2019, 930,000 – 1,010,000 ounces in 2020 and
995,000 – 1,055,000 ounces in 2021. The production profile of the
Company is anchored by two high-grade, low-cost operations,
including the Macassa Mine located in Northern Ontario and the
Fosterville Mine located in the state of Victoria, Australia.
Kirkland Lake Gold‘s solid base of quality assets is complemented
by district scale exploration potential, supported by a strong
financial position with extensive management and operational
expertise. The Company’s shares trade on the Toronto, New York and
Australian Stock Exchanges under the trading symbol KL.
About Detour Gold Corporation
Detour Gold is a mid-tier gold producer in
Canada that holds a 100% interest in Detour Lake, a long-life,
large-scale open pit operation. Detour Gold’s shares trade on the
Toronto Stock Exchange under the trading symbol DGC.
FOR FURTHER INFORMATION PLEASE CONTACT
Kirkland Lake Gold Ltd.
Anthony Makuch, President, Chief Executive Officer &
DirectorPhone: +1 416-840-7884E-mail: tmakuch@klgold.com
Mark Utting, Vice-President, Investor RelationsPhone: +1
416-840-7884E-mail: mutting@klgold.com
Detour Gold Corporation
Mick McMullen, President and Chief Executive Officer &
Director Phone: +1 416-304-0800 E-mail:
mick.mcmullen@detourgold.com
Jaco Crouse, Chief Financial Officer Phone: +1 416-309-7365
E-mail: jcrouse@detourgold.com
The Toronto Stock Exchange has neither reviewed
nor accepts responsibility for the adequacy or accuracy of this
news release.
Cautionary Note Regarding
Forward-Looking Information
This press release contains statements which
constitute “forward-looking information” within the meaning of
applicable securities laws, including statements regarding the
plans, intentions, beliefs and current expectations of Kirkland
Lake Gold and Detour Gold with respect to future business
activities and operating performance. Forward-looking information
is often identified by the words “may”, “would”, “could”, “should”,
“will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”,
“expect” or similar expressions and include information regarding:
(i) expectations regarding whether the proposed Transaction will be
consummated, including whether conditions to the consummation of
the Transaction will be satisfied, or the timing for completing the
Transaction, (ii) expectations regarding the potential benefits and
synergies of the Transaction and the ability of the combined
company to successfully achieve business objectives, including
integrating the companies or the effects of unexpected costs,
liabilities or delays, (iii) expectations regarding additional to
mineral reserves and future production, (iv) expectations regarding
financial strength, free cash flow generation, trading liquidity,
and capital markets profile, (v) expectations regarding future
exploration and development, growth potential for Kirkland Lake
Gold’s and Detour Gold’s operations, (vi) expectations regarding
changes to the Board of Directors of Kirkland Lake Gold, (vii) the
availability of the exemption under Section 3(a)(10) of the U.S.
Securities Act to the securities issuable in the Transaction, and
(viii) expectations for other economic, business, and/or
competitive factors.
Investors are cautioned that forward-looking
information is not based on historical facts but instead reflect
Kirkland Lake Gold’s and Detour Gold’s respective management’s
expectations, estimates or projections concerning future results or
events based on the opinions, assumptions and estimates of
management considered reasonable at the date the statements are
made. Although Kirkland Lake Gold and Detour Gold each believe that
the expectations reflected in such forward-looking information are
reasonable, such information involves risks and uncertainties, and
undue reliance should not be placed on such information, as unknown
or unpredictable factors could have material adverse effects on
future results, performance or achievements of the combined
company. Among the key factors that could cause actual results to
differ materially from those projected in the forward-looking
information are the following: the ability to consummate the
Transaction; the ability to obtain requisite court, regulatory and
shareholder approvals and the satisfaction of other conditions to
the consummation of the Transaction on the proposed terms and
schedule; the ability of Kirkland Lake Gold and Detour Gold to
successfully integrate their respective operations and employees
and realize synergies and cost savings at the times, and to the
extent, anticipated; the potential impact on exploration
activities; the potential impact of the announcement or
consummation of the Transaction on relationships, including with
regulatory bodies, employees, suppliers, customers and competitors;
the re-rating potential following the consummation of the
Transaction; changes in general economic, business and political
conditions, including changes in the financial markets; changes in
applicable laws; compliance with extensive government regulation;
and the diversion of management time on the Transaction. This
forward-looking information may be affected by risks and
uncertainties in the business of Kirkland Lake Gold and Detour Gold
and market conditions. This information is qualified in its
entirety by cautionary statements and risk factor disclosure
contained in filings made by Kirkland Lake Gold and Detour Gold
with the Canadian securities regulators, including Kirkland Lake
Gold’s and Detour Gold’s respective annual information form,
financial statements and related MD&A for the financial year
ended December 31, 2018 and their respective interim financial
reports and related MD&A for the period ended September 30,
2019 filed with the securities regulatory authorities in certain
provinces of Canada and available at www.sedar.com.
This press release also contains Future Oriented
Financial Information and financial outlooks (collectively, “FOFI”)
within the meaning of applicable Canadian securities laws. The FOFI
has been prepared by management of Kirkland Lake Gold and Detour
Gold as at November 25, 2019, to demonstrate the potential benefits
of the Transaction to shareholders. The FOFI has been prepared
based on a number of assumptions that management of Kirkland Lake
Gold and Detour Gold believe are reasonable. However, because this
information is highly subjective and subject to numerous risks,
including the risks discussed above, it should not be relied on as
necessarily indicative of future results.
Should one or more of these risks or
uncertainties materialize, or should assumptions underlying the
forward-looking information prove incorrect, actual results may
vary materially from those described herein as intended, planned,
anticipated, believed, estimated or expected. Although Kirkland
Lake Gold and Detour Gold have attempted to identify important
risks, uncertainties and factors which could cause actual results
to differ materially, there may be others that cause results not to
be as anticipated, estimated or intended. Kirkland Lake Gold and
Detour Gold do not intend, and do not assume any obligation, to
update this forward-looking information except as otherwise
required by applicable law.
NON-IFRS MEASURES
Kirkland Lake Gold and Detour Gold have included
certain non-IFRS measures in this document, as discussed below.
Kirkland Lake Gold and Detour Gold believe that these measures, in
addition to conventional measures prepared in accordance with
International Financial Reporting Standards (“IFRS”), provide
investors an improved ability to evaluate the underlying
performance of Kirkland Lake Gold and Detour Gold and the proposed
transaction. The non-IFRS measures are intended to provide
additional information and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance
with IFRS. These measures do not have any standardized meaning
prescribed under IFRS, and therefore may not be comparable to other
issuers.
In the gold mining industry, free cash flow is a
common performance measure with no standardized meaning. Kirkland
Lake Gold and Detour Gold calculate free cash flow by deducting
cash capital spending (capital expenditures for the period, net of
expenditures paid through finance leases) from net cash provided by
operating activities. Kirkland Lake Gold and Detour Gold disclose
free cash flow as they believe the measure provides valuable
assistance to investors and analysts in evaluating the Company’s
and Detour Gold’s ability to generate cash flow after capital
investments and build the cash resources of the Company and Detour
Gold. The most directly comparable measure prepared in accordance
with IFRS is net cash provided by operating activities less net
cash used in investing activities.
Kirkland Lake Gold Qualified
Person
The scientific and technical content of this
news release with respect to Kirkland Lake Gold and its assets was
reviewed, approved and verified by Natasha Vaz, Vice President,
Technical Services, a Qualified Person as defined in National
Instrument 43-101 – Standards of Disclosure for Mineral Projects
(“NI 43-101”).
Detour Gold Qualified
Person
The scientific and technical content of this
news release with respect to Detour Gold and its assets was
reviewed, verified and approved by David Londono, Mine General
Manager, a Qualified Person as defined by NI 43-101.
Endnotes:
- Additional 15.4 Moz mineral reserves includes proven mineral
reserves of 3.4 million ounces (85.2 million tonnes at an average
grade of 1.24 grams per tonne) and probable mineral reserves of
12.1 million ounces (413.2 million tonnes at an average grade of
0.91 grams per tonne) as of December 31, 2018, as set out below
(See Detour Gold’s news release dated March 7, 2019). A photo
accompanying this announcement is available at
https://www.globenewswire.com/NewsRoom/AttachmentNg/0ef67d75-c383-407f-87f8-782805dd457aNotes:(i)
Detour Gold’s mineral reserve statement is classified in accordance
with the Canadian Institute of Mining, Metallurgy and Petroleum
(“CIM”) “CIM Definition Standards - For Mineral Resources and
Mineral Reserves" adopted by the CIM Council (as amended, the “CIM
Definition Standards”) in accordance with the requirements of
National Instrument 43-101 “Standards of Disclosure for Mineral
Projects" (“NI 43-101”). Mineral reserve estimates reflect the
Company's reasonable expectation that all necessary permits and
approvals will be obtained and maintained.(ii) Mineral
reserves were estimated using a gold price of US$1,000/oz and
mineral resources were estimated using a gold price of US$1,200/oz
at a $US/$CDN exchange rate of 1.10.(iii) Mineral reserves
were based on a cut-off grade of 0.50 g/t Au.(iv) LG Fines
(sourced from material grading 0.40-0.50 g/t Au) classified as
Measured and Indicated were reported as Probable mineral reserves
and included in the mine plan. LG Fines, reported above, also
included 1.7 Mt averaging 0.45 g/t Au.(v) High grade gold
assays were capped at values ranging from 20 to 120 g/t Au
depending on the domain.(vi) Interpolation completed using 2
metre composites. The block grade estimate used 1-pass nearest
neighbor (NN) and 4-pass Inverse Distance Cubed (ID3) interpolation
method. Block model uses block sizes of 5 x 3 x 5
metres.(vii) Totals may not add due to rounding.
- Reserve life index is calculated as contained gold mineral
reserves divided by the midpoint of 2019E production guidance (see
Kirkland Lake Gold News Release dated November 6, 2019).