Agnico Eagle Mines Limited (TSX: AEM) and Kirkland Lake Gold Ltd. (TSX: KL) recently announced a merger agreement, with the merged business continuing to be known as "Agnico Eagle Mines Limited." The new Agnico Eagle will be the gold industry's best-quality senior producer, with the lowest unit costs, greatest profits, and most favorable risk profile, thanks to the merger. The new Agnico Eagle will be led by a merged board and management team under the Merger Agreement.

Key highlights

• Kirkland Lake Gold shareholders will receive 0.7935 of an Agnico Eagle common share for each Kirkland Lake Gold common share retained under the Merger Agreement. Existing Agnico Eagle and Kirkland Lake Gold stockholders will own around 54% and 46% of the merged firm, respectively, when the transaction closes.
• The transaction is expected to close in December 2021 or in the first quarter of 2022.
• The new Agnico Eagle's shares will continue to trade on the TSX and NYSE when the Merger is completed, while Kirkland Lake Gold's shares will be delisted from the TSX, NYSE, and the Australian Securities Exchange.

Strategic Rationale for the Merger

• Creates the Highest Quality Senior Gold Producer: The merger will establish the highest-quality, lowest-risk senior gold miner in the business. With 3.4 million ounces of gold projected to be produced in 2021 at the lowest all-in sustaining costs per ounce among the senior gold producers, this will be a major plus.

Source: Company

• Strengthened balance sheet: The company is projected to have USD 2.3 billion in available liquidity, along with a Net Debt/ 2021E EBITDA of 0.16x. Furthermore, the entity will be holding 48 million ounces of gold in mineral reserves, and an extensive pipeline of development and exploration projects to provide sustainable, low-risk growth when the merger closes.

Source: Company

Recommendation 

The merger will establish a best-in-class gold mining corporation with superior financial and operating metrics, operating in one of the world's top gold areas, the Abitibi-Greenstone Belt of northeastern Ontario and northern Quebec. Furthermore, via synergies and other business development measures, the Abitibi combination will give the new Agnico Eagle with considerable value creation potential. In addition, the Company is well positioned globally as the sole gold producer in Nunavut, with profitable and promising properties in Australia, Finland, and Mexico.

We believe that combining Agnico Eagle and Kirkland Lake Gold strengthens each company's capabilities by bringing together two industry leaders in growing per-share value in main aspects including production, mineral reserves, cash flow, and net asset value. As a result, we assume that this is a win-win situation for both parties. We propose a “Buy” rating on Agnico Eagle Mines Limited at the closing price of CAD 65.71 on September 30, 2021, and a “Hold” rating on Kirkland Lake Gold Ltd. at the closing price of CAD 52.76 on the same date, based on the rationales and synergies described above.

AEM (Yellow) and KL (Purple) daily technical chart. Source: Refinitiv (Thomson Reuters)

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