After a process which took the majority of the year, the Canadian federal government has decided to block the C$1.75 cash takeover of TMAC Resources (TMR.TO) by Shandong Gold, a Chinese company. This means the clock has started to tick for TMAC Resources as although the company has in excess of C$70M in cash as of the end of September, the company only has a few months to find a solution for the almost C$170M in debt maturing in June.

The credit agreement was issued by Sprott Lenders, and the question is now A) how flexible will Sprott Lenders be, B) will a third party step up to refinance the existing credit facility (this is perhaps a difficult scenario as TMAC Resources needs to reconfigure its mine plan and processing plan at a total capex of C$683M (including almost C$120M in contingency) in the next few years or C) another mining company decides to try to acquire TMAC Resources.

The third scenario would probably be the best solution for all stakeholders involved in TMAC as the company will need an external cash injection to fund its new plan (as disclosed in the new pre-feasibility study in March of this year). Although the project requires a substantial cash injection, the current gold price should be a sufficient incentive for a buyer to step up the plate and complete the investment to unlock the 3.55 million ounce gold reserve at Hope Bay.

After all, the pre-tax NPV5% at US$1625 gold is estimated to be C$1.1B and at $1800 gold we are likely looking at a pre-tax NPV5% exceeding C$1.5B. The project is big enough for a senior producer or larger mid-tier producer to give this project a good look and given the near-term maturity date of the debt, shareholder likely won’t be playing hardball and perhaps even a no-premium all-share deal would be accepted (we have a long position in TMAC Resources and would be fine with a no premium deal if a well-funded and reputable company like Barrick or Kirkland Lake would consider acquiring TMAC Resources).

Whatever happens, Maverix Metals (MMX.TO, MMX) will likely be very interested in keeping close tabs on the progress as well as Maverix owns a 2.75% NSR on the project and it would be in Maverix’s best interest to see the production continue on an uninterrupted basis.

The next few months will determine the fate of TMAC Resources. With the gold price trading firmly above $1800/oz we’d like to think the company has more options on the table than when the deal was originally announced.


Disclosure: The author has a long position in TMAC Resources and Maverix Metals. Maverix is a sponsor of the website. Please read our disclaimer.

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