Timmins Gold (TMM.TO, NYSEMKT:TGD) which has been operating the San Francisco gold mine in Northern Mexico has announced it has negotiated an agreement with Goldgroup Mining (GGA.TO) whereby Timmins will purchase the Caballo Gold project in Mexico’s Veracruz state from the latter. The total price tag will be roughly $30M and will be payable in cash ($10M), shares (16M) and an additional payment of $5M if the project’s EIS gets approved before October 31st 2019.
The additional $5M will also be payable if Timmins Gold experiences a change of control. The amount will be payable in cash, shares or a combination of both. This deal of up to $30M seems very fair for both parties involved. Goldgroup will receive a consideration which was higher than its market capitalization so it can definitely defend the deal to its shareholders, whilst Timmins isn’t paying top dollar for a very promising property (there still are some permitting risks left). We have visited the Caballo Blanco project a few years ago (you can see our site visit pictures here). It’s a good property but obviously more work needs to be done, and Timmins Gold will have to work hard to ensure the local communities it will be able to advance the project without causing any nuisance.
Goldgroup’s market cap is now below the value of the offer, and it looks like the company will keep the 16 million shares of Timmins Gold in its treasury rather than paying it out to its shareholders as some kind of special dividend. If Goldgroup is able to keep the shares until the market recovers again and sell them at a higher share price than where Timmins is currently trading at, the ‘effective’ sale price of Caballo Blanco might very well be higher than the originally anticipated $30M.
Disclosure: The author holds a long position in Timmins Gold and Goldgroup Mining. Please see our disclaimer for current positions.