Soltoro Ltd. Acquired by Agnico Eagle Mines
Soltoro Ltd. (SOL – $0.30), one of our favorite mining stocks, is being acquired by Agnico Eagle Mines (TSX: AEM) for approximately $0.325 per Soltoro common share. For each Soltoro share, shareholders will receive 0.00793 of an Agnico Eagle common share, C$0.01 in cash and one share valued at C$0.02 of a company to be newly formed and spun off holding certain assets of Soltoro (provisional name “SpinCo”).
As a result of the transaction, Agnico Eagle will acquire the El Rayo, El Tecolote, La Tortuga, San Pedro and Quila exploration projects held by Soltoro in the state of Jalisco, Mexico. Soltoro will transfer to SpinCo the assets and related liabilities associated with the Gavilan, El Santuario and Chinipas exploration properties that are located outside of the state of Jalisco, Mexico (see below).
SpinCo will be capitalized with approximately C$2.0 million in cash contributed by Agnico Eagle. The SpinCo shares will initially not be listed on any stock exchange, but we heard that it’s certainly the intention to do so in a few quarters.
Looking back, the acquisition is logical as Agnico Eagle also acquired the El Barqueño property from Cayden Resources in September 2014. And many of the mineralized structures and trends on the El Barqueño property can easily be traced onto Soltoro’s El Rayo and Tecolote properties using ground magnetics and aerial photographs (see map below).
The acquisition offer represents a premium of approximately 51% to the volume weighted average price of Soltoro for the 20 day period ended April 9, 2015 and a premium of 55% to the last trading day prior to the announcement of the transaction.
Although Soltoro shareholders must approve the acquisition by a two-thirds majority, we believe that quorum will be reached. The Soltoro Board of Directors, a Special Committee, comprised of independent directors, and the Company’s financial advisor have unanimously determined that the Agnico proposal is fair from a financial point of view and in the best interests of Soltoro and its shareholders. As such, they unanimously recommend that Soltoro securityholders vote in favour of the Arrangement.
As a matter of fact, all of the directors and officers and the largest shareholder of Soltoro, who combined hold approximately 29% of the issued and outstanding Soltoro shares – assuming the exercise of all outstanding warrants and in-the-money options – have entered into agreements with Agnico Eagle to support the transaction and vote all of their Soltoro shares in favour of the acquisition. The transaction is expected to close in June, 2015.
Andrew Thomson, President and CEO of Soltoro stated: “This transaction secures the continued advancement of Soltoro’s main projects in Jalisco by Agnico Eagle. As shareholders participating in this transaction, we look forward to the development of Agnico Eagle’s portfolio of operating and development stage projects in Mexico. The SpinCo entity will also provide Soltoro shareholders with the potential opportunity to participate in future exploration efforts in Mexico with members of our existing management team.”
The SpinCo will have three properties that are currently owned by Soltoro.
The Santuario Property is located northwest of the city of Pachuca in the municipality of Cardonal in central Hidalgo State, Mexico. Pachuca is the capital city of Hidalgo state and one of the most important historic mining centers in Mexico.
There are two primary target deposit types on the property. In April of 2009, a follow-up geologic mapping and sampling program was completed to investigate reports from local residents that visible gold had been observed in areas outside the known mine areas. In August 2012, Soltoro completed a program of mapping, sampling and limited ground magnetics during which 442 rock chip samples were collected. The objective of this program was to assess the potential of the property and identify drill targets. Potential drill targets for gold were identified in the San Clements and El Boxo-Santuario area and a silver-lead-zinc replacement target measuring over 1,000 m in length was identified in the vicinity of the old Fluoruros de Hidalgo fluorspar mine.
The Gavilan Property is located in the San Joaquin mining district on the eastern border of the state of Queretaro, Mexico. The San Joaquin District has been mined intermittently for over 300 years starting with the early Spanish settlers extracting high grade silver from veins and then later Hg was mined from other veins. More recently the nearby La Negra Mine of Peñoles (about 20 km from San Gavilan) produced about 20 Moz of Ag between 1972 and 1986.
None of the mines in the San Joaquin District have been open in the last 20 years. Much of the San Joaquin area was Nationalized by the Mexican government in the 1980’s and did not come open for staking until 1993. The area surrounding and including the Gavilan claim has been held by private individuals since then, but has not seen an exploration work in that time. The property needs further geologic mapping and sampling to locate all the mineralized prospects and structures to then identify areas for drill testing.
The Chinipas Property is located in the southwest Chihuahua State, Mexico. Two prospects within the claim area have seen limited gold production in the past, though little is known about their history.
In February of 2009, mapping confirmed that veining occurs over 3.4 km of strike and roughly 500 meters wide. The veins vary from very fine to 10’s of cm in width. Highlights of a 2008 sampling program include: 2 metres of 2.92 g/t gold, 1.3 metres of 2.49 gold and 2.14 g/t gold in a 3 metre x 3 metre panel sample. In 2009, a limited sampling program was completed using diamond blade cut channel samples which confirmed previous sampling values.
Agnico Eagle will more than likely acquire 100% of Soltoro’s issued and outstanding common shares for total consideration of approximately C$31.6 million. This will be the 34th acquisition in our history.
And so we part from a Company with some very promising assets. We could hold on to our Agnico Eagle shares after the acquisition, and as such continue to benefit from the development of the properties, but we won’t track it on Smallcaps, as an $8 billion company isn’t exactly a small cap.
In normal circumstances, we would also have to part from Soltoro’s well-balanced management team that was able to develop the properties despite tough market conditions during the past few years. But thanks to the SpinCo shares we won’t have to. Gavilan and the other properties are early stage, but look promising.
We advise you to hold on to your Soltoro shares, as the chance of the Agnico acquisition falling through is slim. In addition, we have a feeling that the SpinCo shares, at this moment valued at C$0.02, will soon be worth much more.
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