Anaconda Mining Inc. (TSX:ANX) has announced it intends to make an offer to acquire Maritime, for consideration of 0.364 of a common share of Anaconda
in exchange for each Maritime share, a 40% premium to the market. We view the potential acquisition as accretive to Anaconda shareholders, providing
another source of feed for the Pine Cove Mill, specifically, providing a higher-grade source of feed than currently considered in the mine plan. While
we expect a merger to be positive for our estimates, we have not yet incorporated it into our model as a formal offer has not yet been made and there
is a risk that Maritime's significant shareholder Rambler Metals and Mining (TSXV:RAB), could make a counteroffer as they have similar synergies.
Anaconda offers a premium for Maritime. Anaconda announced its intentions to make a formal offer to acquire Maritime, after its earlier
proposal made to Maritime on January 29, 2018. Due to the lack of engagement from Maritime’s board of directors, the company is taking the offer directly
to Maritime’s shareholders. Anaconda would acquire all outstanding shares of Maritime, for consideration of 0.364 of a common share of Anaconda for
each Maritime share. The offer represents a 40% premium to market, as of Maritime’s closing price on March 16, 2018 of C$0.10 and a 44% premium based
on its volume weighted average trading price (20-day ended March 16, 2018) of C$0.097 per Maritime share.
Maritime’s Green Bay Property well positioned. Maritime wholly owns the Green Bay Property (12,775 acres) near Springdale, Newfoundland,
which hosts the past producing Hammerdown Gold Mine, Orion gold deposit and the Lochinvar base-precious metals deposit. The property hosts a NI 43-101
compliant resource (2013) of 473,200 oz Au (2.22Mt @ 7.28 g/t Au – M&I) and 601,900 oz Au (2.845Mt @ 6.58 g/t Au – Inferred). The company completed
a PFS for the property in April 2017, which outlined total recovered gold of 173,977 at 7.96 g/t Au over a 5 year mine life. The economics of the project
estimate, total operating costs (excluding toll milling charges) of C$97.1M, total capital costs of C$67.8M, after-tax cash flow of C$69.2M, with an
after-tax NPV8% of C$44.2M and IRR of 34.8%.
Acquisition likely to be accretive to our estimates. We view the proposed acquisition as accretive for both Anaconda and Maritime shareholders.
Given the Green Bay Property’s relative location to Anaconda’s Pine Cove Mill (Figure 1), which has available capacity, Anaconda could quickly advance
the property by taking advantage of this existing infrastructure and team, while reducing costs. Importantly, with excess capacity at the mill, the
acquisition would provide a higher-grade source of feed for the mill.
It’s not a done deal yet.
We highlight that there is probably a ~50% chance it is completed. First, this is likely to be a hostile offer
by Anaconda, which comes with lower probability by nature. As well, the other operating mining company in Newfoundland, Rambler Metals and Mining has
similar synergies with Maritime and already owns 7.91% of the company. In our view, the possibility exists that Rambler makes an offer of its own.
When the likelihood of Anaconda acquiring Maritime increases we plan to incorporate it in our estimates.
Derek Macpherson | VP Mining Analysis
Victoria Ellis Hayes | Associate
Alex Pitcher | Associate
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