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AuRico Gold Up 3% as Credit Suisse Analyzes its Bid For Northgate Minerals

Credit Suisse revised downward its estimates but raised its target price on AuRico Gold (AUQ.TO) while keeping a NEUTRAL rating after it bid for Nortgate Minerals (NGX.TO.

AUQ announces acquisition with Northgate Minerals: "On August 29th, 2011, AUQ and NGX announced a friendly acquisition in which AUQ would acquire all outstanding NGX shares. In an all stock deal, AUQ has offered 0.365 AUQ for 1 NGX share (implied price of USD5.08/sh), a 61% premium and overall bid price of USD$1.4B. We expect the deal to close under the proposed arrangement and do not anticipate an alternative bidder for NGX. The deal will provide AUQ with added asset and geographic diversification in a stable mining jurisdictions via NGX's flagship Young Davidson mine. The mine is expected to be operational in early 2012. Young Davidson is expected to produce 180kozs at $400/oz cash costs with an expected 15 year mine life."

Valuation: "Our Target price of $14.00 (previous: $12.00) is based on a Target P/NAV multiple of 1.3 times (revised from 1.2X) our $10.35/sh DCF (revised from $10.04) with net cash of $0.64/sh (revised from $0.16) added at par. We maintain our Neutral rating. While we have revised our P/NAV multiple upwards to reflect asset diversification, and while the deal is accretive, we believe AUQ's multiple is only now justified with this transaction. Previously, it was trading near the top of the group on only 30% growth over five years, which is near the bottom end for our growth oriented companies. Additionally, there is now added near term risk with the company as it now needs to move from operating only one asset in Q1/11 to six assets in Q1/12, a tall order for even the most experienced of operators."

A fair price paid for NGX reserves and resources: "We calculate AUQ is paying approximately $391/oz reserves and $194/oz resources which we consider fair value."

Adding NGX into the fold is accretive: "We ascribe a NAV of $11.00/sh to the potential Newco vs. $10.20/sh for AUQ on a stand-alone basis, implying accretion of $0.80/sh for AUQ shareholders. AUQ is getting 58% of the Newco while providing 42% of the 2011 production and 55% of total reserves and resources."

Deal terms: "The deal has been approved by both Boards and is expected to be approved through a court approved plan of arrangement. AUQ and NGX shareholders would own approximately 62% and 38% of the NewCo, respectively. The plan of arrangement requires approval by 66?% approval by NGX shareholders and over 50% of AUQ shareholders. Deal closing is expected by the end of October. A break fee of $45M applies for NGX and $28M for AUQ. The previous arrangement agreement NGX had with Primero Mining Corp (P.TO), announced on July 12, 2011, has been terminated."

EPS Changes: After incorporating Q2/11 earnings results and model updates we have revised our EPS for FY11/12/13 to $0.95/$0.23/$0.70 which compare to our previous estimates of $1.04/$1.11/$0.97, respectively.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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