Early this morning Timmins Gold (TMM:TSX) announced they have entered into an agreement to acquire Newstrike Capital (NES:TSXV). This is the second acquisition in the last few months by Timmins as they had previously acquired Caballo Blanco from Goldgroup.
Timmins is a junior gold producer that operates the San Francisco mine in northern Sonora, Mexico. The open pit heap leach mine generates strong cash flow. The current mine life is estimated at ~9.5 years but it is clear that with the recent acquisitions Timmins is looking for growth and building for the future.
All three of the flagship projects are now located in Mexico. Mexico is well known as a favourable mining jurisdiction but issues with royalty increases and safety have been of concern for companies. As you will notice in the map above the projects are located a fair distance from each other and in different states.
The acquisition of Newstrike adds the Ana Paula project located in the prolific Guerrero Gold Belt. A PEA released on the project shows an IRR (after tax) of 32.8% at $1300 gold.
The deal when announced valued Newstrike at $1.15 per share. The $1.15 is a far cry from the $3.40 the share price reached a couple years ago but almost a double from the 60 cent level at the end of May.
"The combination of Timmins Gold and Newstrike will immediately position Timmins Gold as an emerging intermediate gold company supported by current production and a very attractive pipeline of development projects," said Bruce Bragagnolo, CEO of Timmins Gold. Arturo Bonillas, President of Timmins Gold, added: "The assets and projects in both companies are highly complementary and we are excited about the many opportunities ahead for us to continue delivering value to Timmins Gold shareholders. This transaction provides significant benefits to Newstrike shareholders and is accretive to Timmins Gold on key financial and operating metrics."
Many analysts and people who have experience in the space say M&A is one sign of a bottom in the space. We have seen several transactions recently.
Have mining stocks bottomed or are we still going to have suffer some more pain?
Only time will tell.
Discuss in CEO.ca live chat
This is not investment advice. All facts are to be checked and verified by reader. As always please do your own due diligence.