China's Zijin Mining Group Co Ltd has agreed to purchase Canadian miner Continental Gold Inc for C$1.3 billion ($1 billion), but a top executive with the target company said Colombia's high-security concerns pose a risk to the deal.
Zijin Mining - one of China's largest gold companies - revealed late Monday that it intends to capture the Buritica gold project flagship of Continental Gold in Colombia.
"Zijin has no background in Colombia, although certainly in the past we have had some problems," Continental Chief Financial Officer Paul Begin told Reuters. "But if any project had a major security incident, it would be considered a material adverse change," he said.
In a single month last year, four Colombia-deployed Continental workers were murdered, three near Buritica and the other at another mining location.
Zijin's cash offer of C$5.50 a share is almost a thirteen-fold boost to the stock's closing Friday of Continental. During Monday afternoon trade in Toronto, Continental's securities were up nearly 10 percent.
In as many weeks as miners seek to raise stocks and take advantage of firmer bullion rates, the sale marks the second takeover of a Canadian gold miner. Canada's Kirkland Lake Gold Ltd last week offered to purchase Detour Gold in an all-stock deal worth around C$ 4.3 billion.
The Buritica project has measured and reported 165.47 tons of gold reserves and 187.24 tons of inferred reserves, Zijin said. After purchase, Zijin expects it's gold reserves to exceed 2,000 tons, with output eventually increasing by about 20 percent. After becoming operational in 2020, it expects the Buritica project to generate robustly profit and cash flow.
Buritica is emerging as a major test for the future of bigger underground mining in Colombia, whose mostly unexplored mineral wealth has miners rubbing their hands.
Continental Chief Executive Ari Sussman said the venture is expected to reach completion next year and "the timing is right for Continental to sell to a more seasoned mine owner." Newmont Goldcorp Inc said in a a separate statement that it would tender its 20 percent interest in Continental.
The contract still needs permissions from the government of Canada and China, Begin added. Last year, Canada blocked a proposed $1.5 billion takeovers of the construction company Aecon on national security grounds by the Chinese state builder China Communications Construction Co Ltd.
Continental investors must vote in January on the contract. Begin said he planned in late March or early April to receive the green light for the billion-dollar venture.
