Prodigy Gold (CVE:PDG) and Argonaut Gold (TSE:AR) said today that proxy advisory firm Institutional Investor Services has recommended that shareholders of both companies vote in favour of Argonaut's proposed buyout of Prodigy.
Last month, Prodigy Gold announced that it agreed to be bought by Argonaut Gold in a deal that values Prodigy's equity at roughly $341 million on a fully diluted basis, with an enterprise value of $277 million.
Under the terms of the agreement, Prodigy shareholders will receive 0.1042 of an Argonaut Gold share and C$0.00001 in cash per Prodigy share, representing $1.08 per share based on Argonaut's 20-day volume-weighted average price as at October 12.
Prodigy said it will benefit from Argonaut's “strong operating experience” and cash flow, as well as its ability to successfully advance Prodigy's Magino gold project.
The ISS report notes: "In light of the favorable market reaction, the favorable termination fee agreement, and no significant noted governance concerns, a vote FOR this resolution is warranted."
It adds that the potential dilution associated with the transaction will be 28% on a fully diluted basis for Argonaut common shares "which does not appear to be unreasonably excessive."
The report also states that Prodigy shareholders "are expected to be provided with exposure to current production and cash flow in a strong gold price environment and continuing exposure to the advancement of the Magino Property as well as Argonaut's existing organic growth profile."
In August, Prodigy unveiled an updated mineral resource statement for its Magino gold project in northern Ontario that surpassed some analysts' expectations.
The latest NI 43-101 report contains an indicated resource of 5.8 million ounces of gold, from 203 million tonnes grading 0.89 grams per tonne (g/t), and an inferred resource of 300,164 ounces of gold from 10.3 million tonnes at 0.91 g/t gold. Both resource categories had a cut off grade of 0.35 g/t gold.
The company said the new estimate expands the project's gold resource by more than 55 per cent. In addition, 95 per cent of the resource now resides in the measured and indicated category, versus 56 per cent previously.
Meanwhile, Argonaut’s primary assets are the production-stage El Castillo Mine in the state of Durango, Mexico and the La Colorada Mine in the state of Sonora, Mexico.
It also has the advanced exploration stage San Antonio project in Baja California Sur, Mexico, and several other exploration properties - all held in Mexico.
The companies said that Magino represents a “significant scale asset” in the Argonaut portfolio, and has the potential to allow the miner to achieve or exceed its 300,000 to 500,000 ounce gold production target.
If shareholders approve the arrangement, Argonaut will be owned 78 per cent by its current shareholders and 22 per cent by current Prodigy shareholders.
"We are very content with this recommendation," said Prodigy president and CEO, Brian Maher. "Our shareholders will receive the premium they deserve and will have the opportunity to participate in a company that has current production exposure and can both finance and develop Magino."
The voting deadline for shareholders of both companies is Tuesday, December 4.