TORONTO, July -- Denver-based Thompson Creek Metals is making good on a promise to put its strong cash balance to work, with the news that it will buy Canada's Terrane Metals, adding a construction-ready copper/gold project to its growth profile.
Thompson Creek mines molybdenum - used to strengthen steel - from its 75%-owned Endako mine in British Columbia and the Thompson Creek mine, in Idaho, and also operates a metallurgical facility in Pennsylvania.
The company has said since March 2009 that it was "actively" looking for projects to buy, and CEO Kevin Loughrey has been fielding increasingly pointed questions from analysts and investors about his plans for the firm's growing cash pile.
"I've been yapping on about doing an acquisition for some time now, and I was even starting to get tired of hearing myself talking about it," Loughrey quipped on Thursday.
"But we're pleased to have waited to find what we think is a really beneficial transaction."
The deal provides clear production and revenue growth, as well as the benefit of commodity exposure, Loughrey said.
Terrane's main asset is the Mount Milligan copper and gold project in British Columbia, which is essentially shovel-ready, and for which the junior has been looking to raise finance.
Production at Mount Milligan, which is located just 150 km from Thompson Creek's Endako operation, is expected as soon as 2013.
Terrane also has a handful of other earlier-stage assets, including the Berg copper/molybdenum project, which could be put into production in five or six years, according to CEO Rob Pease.
The company's biggest shareholder, at 58% of its voting equity, is Canada's second-biggest miner Goldcorp, which has agreed to back the transaction.
Goldcorp bought a group of assets from Placer Dome when it was acquired by Barrick Gold, and subsequently sold the Mount Milligan project and some other Canadian prospects to Terrane in July 2006, for 240-million convertible preferred shares in the smaller company.
(Goldcorp could actually have converted its Terrane holding back into a direct interest in Mount Milligan, but said in January this year it would let the option expire and retain the Terrane shares instead.)
Thompson Creek and Terrane have agreed to a deal in which Terrane shareholders will receive C$0,90 in cash and 0,052 of a Thompson Creek common share per Terrane share, implying an offer value of C$1,41 a Terrane share based closing prices on Wednesday.
The transaction has been unanimously approved by Terrane's board, but still needs regulatory approvals as well as the nod from two-thirds of the firm's shareholders.
Although the acquisition is dilutive in the near term for Thompson Creek investors, the deal is a "good move" in the long run, Dahlman Rose & Co analyst Anthony Young said on Thursday.
"Over the long-term, we would view this as an accretive and transformative transaction for the company.
"We like the company's new diversified product offering and believe that investors will be attracted to and willing to pay a higher multiple for a gold, copper, and molybdenum company," Young wrote in a note.