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Jarrod Wesson
Published on
November 13, 2017
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Did you see the share price spike that AURICO METALS INC. (OTCMKTS:ARCTF) exhibited very recently?It has drawn the attention of many market participants in the market. Company LogoFrom close to $1.00, the share price went up to $1.39 in only one session.Have a look at it: 2 years chart for ARCTFMost importantly, the amount of shares that changed hands was very significant. More than 1 million shares were exchanged. We believe that it shows that the market became interested in ARCTF. Check the following stock chart:

1 month chart for ARCTF

What happened?CENTERRA GOLD INC. (OTCMKTS:CAGDF) and the company signed an agreement, under which Centerra will acquire AuRico Metals for C$1.80 in cash consideration per share.In this article, we will let you know what's about to happen.AURICO METALSAuRico Metals runs a portfolio of precious metals royalties and the Kemess Underground Project located in British Columbia, Canada. The revenues generated come from ownership of royalty interests, while the Kemess Underground Project is still in pre-production stage. This project seems to be promising. If it is finally developed, the company could sell concentrate produced containing gold, copper, and silver.Have a look at the reserves indicated provided by the company in its last annual report: Kemess Underground Resources from AURICO METALS INC OTCMKTS:ARCTFThere is still a lot of work, since the reserves have not been measured yet. But, we believe that it is right time to study the project and the company. The value of the company will increase if the market receives concrete reserve information and the share price could be pushed up as a result.Additionally, it was also noted in the report that 107,381,000 tones are proven and probable. The concentration is as follows:- 0.27% Cu Grade- 0.54% Au Grade- 1.99% AG GradeThe Kemess Underground feasibility study was completed in 2016. The engineers concluded that 1.4 million ounces of gold, 573 million pounds of copper and 4.5 million ounces of silver could be recovered over 12 years of commercial production. Additionally, the post-tax net present value (at 5% discount rate) is $421 million, whereas the post-tax internal rate of return is 15.4%. We believe that it was this financial figure which interested the buyer CENTERRA GOLD INC. (OTCMKTS:CAGDF).Regarding the other interests owned, the following is an image of the reported revenues by each asset: Total revenue recognized per royalty interest held by AURICO METALS INC OTCMKTS:ARCTFAuRico's balance sheet showed $180 million in assets, $18 million in cash, and only $45 million in total liabilities for the period ended September 30, 2017.CENTERRA GOLD CENTERRA GOLD INC. (OTCMKTS:CAGDF) is a large mining company. Its market capitalization is CAD$2.26 billion and holds CAD$101 million in cash, and CAD$438 million in total debt.Why is it buying AuRico?The company gave several reasons in the press release, but we believe that the most significant are the following; Kemess property's Öksüt Project in Turkey, the Greenstone Gold Property in Ontario, Canada, and the Gatsuurt Project in Mongolia; the synergies after integrating both companies; and acquiring a high quality, free-cash flow generating royalty portfolio.Stephen A. Lang , Chairman and Director of Centerra, explained:

"With the acquisition of the AuRico Metals assets, Centerra expands its existing development pipeline to include another low-cost de-risked brownfield development asset, the Kemess property, located in Canada—one of the lowest risk mining jurisdictions in the world. As well, the Company adds a high-quality, free-cash flow generating royalty portfolio. In the future, as the Company delivers on building out this development pipeline its production base will be sustained and continue to grow with sector-leading operating margins positioning the Company to generate robust free cash flows for many years to come." Source

The transaction is subject to the approval by 66 2/3 percent of the votes cast at a special meeting of AuRico Metals shareholders. Additionally, regulatory approvals will be necessary, which, we believe, will not be a problem.Director of the company and shareholders of the target owning 11.4 percent of the outstanding AuRico Metals common shares will vote for it.Conclusion Currently trading with a market cap of $223 million, ARCTF is an exciting story among small caps. CAGDF has an interesting financial profile with cash and a solid balance sheet. We believe the transaction benefits both parties and expect the combined company to go on and become a leading junior miner.We will be updating our subscribers as soon as we know more. For the latest updates on CAGDF/ARCTF, sign up below!Image courtesy of timofair via FlickrDisclosure: We have no position in CAGDF or ARCTF and have not been compensated for this article.

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