Sales comment from Cormark
Lundin Gold (LUG CN) raises US$400 MM in equity with a strategic investor to fully fund the world-class FDN asset (Ecuador) into production.
Comfortably Funded To 2019 Production:
- Newcrest Mining (NCM-ASX) steps in as a 27.1% strategic shareholder and will subscribe for US$250 MM @ C$5.50/sh a 13% premium to the last close.
- Newcrest will be granted 2 board seats and anti-dilution rights.
- The Lundin Family will invest US$50 MM at the same price as Newcrest.
- Orion Mine Finance will invest US$100 MM at C$5.25/sh following through on its commitment attached to the earlier US$300 MM debt/stream financing with Orion/Blackstone (LINK).....Orion will be granted one board seat and anti-dilution rights. - Based on the US$730 MM total capex and advance royalty payments (US$20 MM due in 2018), Lundin is easily funded to production with a >US$100 MM buffer and may have spare capacity to buy back the gold stream.
Newcrest Doubles Down On Ecuador:
- In addition to the large equity investment, Newcrest will also earn into a 50% interest in the exploration package surrounding FDN by spending US$20 MM over 5 years.
- Recall that this is Newcrest's 2nd largest investment vehicle in Ecuador and it already owns a 15% interest in SolGold(SOLG.T, Not Rated) following participation in US$63 MM worth of private placements.
- The strategic interest from Newcrest optically derisks Ecuador further and adds additional technical horsepower to assist in completing the FDN build.
Steps Closer To Trading At ~C$8.00 NAV:
- We like this deal for a number of reasons:
> The financing price easily beat our model estimates (we had modeled C$4.50/sh raise) resulting in substantially less dilution than expected
> The financing provides sufficient funds for working capital, contingency items and a very healthy buffer to cover any cost overruns or delays....we have seen how easily balance sheet concerns can dramatically erode equity value with even the slightest ramp-up headwinds (TXG, TMAC, PVG).
> The deal ensures a constant spend on the exploration package which currently carries little value ($0.16/sh) in our NAV but is under explored for FDN analogs.
> The partnership with a super major (>A$16 BB mtk cap) will increase M&A speculation and provides additional technical resources.
Bottom Line: Based on the new funding mix, our NAV is C$7.96/sh (at $1,250/oz Au) and we expect the stock to re-rate to 0.9-1x NAV once it reaches production given the rare scale (>300 koz/yr) and quality ($609/oz AISC) of this asset.
