On 28th September, Agnico Eagle (TSX: AEM; NYSE: AEM) and Kirkland Lake Gold (TSX: KL; NYSE: KL) announced that they had entered into an agreement to merge the two companies. The proposed transaction will see Kirkland Lake Gold shareholders receive 0.7935 Agnico Eagle shares for each share held, with the total value of the deal estimated at $11Bn. Should the merger be successfully completed, which is expected to happen late this year or in Q1.22, it would create the world's third biggest gold mining company, behind Newmont and Barrick, with forecast production of 113t in 2022, according to analysts at Metals Focus, one of the world's leading precious metals consultancies.
Here, the team of analysts give an overview of the proposed merger between Agnico Eagle and Kirkland Lake Gold:
More than three quarters of this production will come from Canada, with Kirkland's Detour Lake and Macassa adding to Agnico's five wholly owned mines in the country alongside Canadian Malartic, a joint venture with Yamana Gold. The remaining output will come from Fosterville in Australia, Kittila in Finland and Pinos Altos and La India, both in Mexico. Looking further ahead, output from the combined entity is expected to grow to 120t by 2024 driven by rising output from existing operations such as Macassa and Meadowbank.
Agnico Eagle's contained gold in reserves stood at 749t as of 31st December 2020 and this increased to 859t with the company's acquisition of TMAC Resources and it's Hope Bay mine in February this year. The addition of Kirkland Lake's assets will push reserves up significantly to 1,485t, higher than major producers such as Anglogold Ashanti (923t) and Kinross (933t), but lower than others such as Polyus (3,235t), Newmont (3,116t) and Barrick (2,115t).
The majority of this rise will come from the addition of Detour Lake which has contained gold in reserves of 489t and is one of the biggest gold deposits in the world, despite having a relatively low grade of 0.8 g/t.
Detour Lake will also be the biggest contributing mine to production from both companies, with attributable output of 22t expected in 2021 compared to the next biggest producer, Fosterville at 13t. In contrast to Detour Lake, Kirkland's other two mines, Fosterville and Macassa, are both very high grade operations with reserve grades of 13.1 g/t and 19.2 g/t respectively. These high grade deposits allow Fosterville and Macassa to maintain relatively low unit production costs and this will help lower Agnico Eagle's overall costs post-merger.
As shown in our most recent Gold Mine Cost Service, Kirkland Lake Gold is the lowest cost producer of the two companies with a reported AISC of $780/oz in Q2.21 compared to $1,037/oz for Agnico Eagle. The average AISC of the two companies combined in Q2.21 was $929/oz, this is lower than Newmont, Barrick and Anglogold Ashanti but higher than the lowest cost major gold producer, Polyus. The lowest cost operation from the two companies in Q2.21 was Fosterville which had a reported AISC of $353/oz. This makes it one of the lowest cost gold mines in the world and therefore one of the primary drivers in lowering unit costs for the combined company.
The merger also creates opportunities for cost savings from corporate and operational synergies. Agnico and Kirkland estimate this could amount to a saving of more than $2Bn over the next 10 years. There is particular scope for operational synergies to be realized in the Abitibi region of Ontario and Quebec where five of the companies mines are located. Meanwhile, as highlighted in our recently released Gold Peer Group ESG report, Agnico Eagle has one of the lowest Greenhouse Gas (GHG) emission levels per ounce of gold produced at 0.33t CO2e/ oz last year for scope 1 and 2 emissions. This low GHG intensity will be maintained after the merger as Kirkland Lake Gold had GHG emissions per ounce almost identical in 2020 at 0.32t CO2e/oz.
Should the deal be successfully completed then the merger of Agnico Eagle and Kirkland Lake Gold will create a gold producer that is attractive to investors due to its mines being located in stable and mining friendly jurisdictions, low cost production, upside potential for output and an attractive ESG profile.
About Agnico Eagle Mines Limited
Agnico Eagle is a senior Canadian gold mining company that has produced precious metals since 1957. Its operating mines are located in Canada, Finland and Mexico, with exploration and development activities in each of these countries as well as in the United States and Colombia. Agnico Eagle and its shareholders have full exposure to gold prices due to its long-standing policy of no forward gold sales. Agnico Eagle has declared a cash dividend every year since 1983.
About Kirkland Lake Gold Ltd.
Kirkland Lake Gold Ltd. is a senior gold producer operating in Canada and Australia that is targeting 1,300,000 - 1,400,000 ounces of production in 2021. The production profile of Kirkland Lake Gold is anchored by three high-quality operations, including the Macassa Mine and Detour Lake Mine, both located in Northern Ontario, and the Fosterville Mine located in the state of Victoria, Australia. Kirkland Lake Gold's solid base of quality assets is complemented by district scale exploration potential, supported by a strong financial position with extensive management expertise.
Editor's Note: Metals Focus is a leading, independent precious metals research consultancy, providing in-depth consulting services to mining companies, corporations, investment central banks, financial institutions and governments. Metals Focus are independent and concentrate solely on the precious metals space. For more information, visit www.metalsfocus.com.