Why is EAG the best deal in the merger?

With the mega merger of Eagle Hill Exploration (TSXV:EAG), Temex Resources (TSXV:TME), Mark Goodman’s Ryan Gold (TSXV:RYG) and Corona Gold (CSE:CRG) into the new Oban (TSX:OBM) you wonder if you should buy the pieces or the end product?

The short of the deal is a seat at the big kids table with EAG valued the most in such a way that on top of the $1.10 share price used for the deal, currently trading at $0.80, you also receive 5 share warrants. This means once approved you will earn not only get an increase of 37.5% but with talk of a need to consolidate your warrants will increase in value. No need for a formula on this choice.

"There’s been much talk of consolidation in the gold space in 2015, but Tuesday’s announcement from Oban Mining (TSX:OBM) took things to another level. Oban will merge with four other gold companies to create a new miner with an estimated market cap of $122 million.

The other companies included in the merger are Eagle Hill Exploration (TSXV:EAG), Temex Resources (TSXV:TME), Mark Goodman’s Ryan Gold (TSXV:RYG) and the recently CSE-listed Corona Gold (CSE:CRG). Additionally, Oban will acquire 19.9 percent of BonTerra Resources (TSXV:BTR) by way of a private placement.

Osisko Gold Royalties (TSX:OR) is also in on the action via a $20-million investment with Oban for first rights to participate in royalties and streams, pro rata financing participating rights and the right to nominate three directors to the board of the new company. Furthermore, Osisko CEO Sean Roosen will co-chair the new company along with mining industry heavyweight Ned Goodman.

By the numbers

In terms of how ownership will look for the other four companies (prior to Osisko’s private placement), Eagle Hill will own 28 percent of Oban, Temex will own 16 percent, Ryan Gold will own 24 percent and Corona Gold will get 19 percent. Osisko and Dundee Capital Markets will own 18 and 15 percent of the company, respectively.

“This is an exciting new chapter in Canadian mining,” said John Burzynski, current chairman of Oban, in a statement. “Post-consolidation, New Oban brings together major exploration assets in Ontario and Quebec under experienced management in a well-capitalized vehicle, with over $65M in cash and a significant global gold resource.” Executives at Eagle Hill, Temex, Ryan Gold and Corona Gold had similarly positive things to say about the transaction, and the deal appears to have been well received for most companies involved.

At close of day on Tuesday, shares of Oban were up 31 percent, at $0.105, on 27 times the average daily trading volume, while Ryan Gold gained 20 percent, to $0.145, with roughly 60 times the average trading volume. Temex Resources ended the day flat at $0.07, but Eagle Hill was up a whopping 138 percent, or 47 cents, at $0.81.

An interesting situation

Jose Vizquerra, Oban’s current CEO and future COO, said that the last time he remembers something similar happening was with LAC Minerals in the 1980s — that company was subsequently taken over by Barrick Gold (TSX:ABX,NYSE:ABX).

“The concept was simple,” he said. “[M]erge companies with cash with companies with high-quality projects in distress.” Vizquerra added that timing was important, and that Oban had started looking into the idea a year ago after it made the decision to leave South America and focus exploration efforts in Quebec’s Abitibi region.

One might expect that it would have been difficult to get all five companies on board with the merger, but Vizquerra said that things went more smoothly than expected. “We prepared the plan expecting to have some push back,” he said. “[H]owever, the concept was well understood and that was the key to move this forward.”

Reactions

For his part, Temex Resources President and CEO Ian Campbell admitted that he’s seen a mixed reaction from shareholders. “Those in the financial community understand that it’s the right thing to do and are very supportive and congratulatory,” he said, “and then I think there’s some individual shareholders that would have preferred us to … hang on a bit longer and see what was going to happen with it.”

Still, Campbell said Temex still believes the merger was the “right thing to do at the right time.” To be sure, it’s still tough out there for juniors trying to get financing, and Campbell argued that while there’s been plenty of talk about consolidation in the junior mining space, there hasn’t been a lot of action.

Campbell said that Temex got on board with the deal because of the opportunity to get involved with some of the the elite of the business and with a new company with ~$65 million in working capital for a premium on Temex’s share price. “It’s always, to me, all about the people,” he said. “We’ve attracted, obviously, the who’s who of the Canadian mining industry, and we’re happy to be involved.”

For Vizquerra, the upshot of the merger is a bright spot in an otherwise gloomy market. ”It just shows that there is a light at the end of the tunnel if you are creative enough,” he said.

Certainly, investors will be watching for the deal to close in coming months.

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article."

Forward by TSX10BAGGER.CA article by Teresa Matich via Gold Investing News