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Relationship drives Papillon, B2Gold merger

MUTUAL admiration was the driving force behind the $A615 million friendly merger between B2Gold a...

Kristie Batten

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The scrip deal will see Papillon shareholders receive 0.661 B2Gold shares for each share held, valuing Papillon shares at around $1.72 per share, or $615 million.

The offer ratio represents a 42.4% premium to the 20-day volume weighted average price of Papillon and B2Gold shares as of Monday – and a 20.6% premium to the last closing prices.

Papillon shareholders will hold around 26% of the enlarged company, which will have three operating mines and two projects in development.

B2Gold CEO Clive Johnson said he had known Papillon managing director Mark Connelly for many years and the two had come close to doing a deal some years ago, presumably when Connelly fronted Adamus Resources, which was subsequently taken over by Endeavour Mining.

Connelly, who will join the B2Gold board, said B2Gold stood out to him.

“I’ve always been impressed with the quality of work they do,” he said on a teleconference this morning.

“They’ve certainly been a standout performer.”

Johnson said the two shared a mutual admiration and the attraction for B2Gold was Papillon’s 5.15 million ounce Fekola gold project in Mali.

“We’ve seen Fekola for a long time as a very attractive project,” Johnson said.

“We’ve looked at a lot of projects over the years … probably hundreds.

“There are few projects like this.”

Connelly said the two companies had been in talks for a number of months and B2Gold had completed a number of site visits.

Johnson added that the level of due diligence completed by B2Gold’s technical team gave it the confidence to continue to grow.

“We are prepared to grow when others fear to grow,” he said.

“The time is right to do this deal now.”

B2Gold owns the Limon and La Libertad gold mines in Nicaragua and the Masbate mine in the Philippines, through its acquisition of Australia’s CGA Mining last year.

Those three mines will produce 366,000oz of gold this year at C1 costs of $C681/oz and all-in sustaining costs of $1064/oz.

The company is also building the low-cost Otjikoto mine in Namibia, due for first production late this year.

B2Gold’s in-house construction team is handling the build, as it has done with the company’s two Nicaraguan mines, and is looking for its next project.

The completion of Otjikoto will coincide with the expected start of construction at Fekola, which will become B2Gold’s primary focus.

“We’re not going to build two mines at the same time,” Johnson said.

“I think that’s where other companies have gone wrong.”

Johnson expected B2Gold’s production to rise to 555,000oz next year, and with the addition of Fekola production from 2017, this could rise to 925,000 ozpa.

The combined company will have cash and cash equivalents of $190 million and an unused debt facility of $150 million with good access to capital.

Fekola capital costs are estimated at around $US300 million, with the definitive feasibility study due in the September quarter.

Papillon’s board is recommending the transaction.

At this stage, the merger would be completed in late September.

Shares in Papillon gained nearly 11% to $A1.58.

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