Arctic gold miner hopes metal rally can lift its fortunes as it looks for a buyer amid operational challenges
Canadian gold producer TMAC Resources announced Monday it is looking for a buyer after hitting consistent operational challenges at its Nunavut mine that have hampered its ability to expand.
The Toronto-headquartered company said it is studying whether a sale, joint venture partnership or an alternative financing could buoy its share price, which has declined more than 57 per cent since July — even as gold prices increased during much of that time. The stock was down 5 per cent on Monday to $2.85 on the Toronto exchange.
Whatever happens to the company could influence how investors view opportunities in the Canadian Arctic. For years, mining industry leaders have said the vast undeveloped north will be the next frontier for exploration and development. But the operational challenges that TMAC faced, despite backing from industry veterans, highlight the risks associated with the Arctic.
Jason Neal, chief executive of TMAC, told the Financial Post on Monday — as his flight to Nunavut was about to board — the company plans to release a pre-feasibility study that lays out the costs and benefits of expansion in Nunavut.
“What it’s going to show is a future value for the company that’s quite robust, but that requires another phase of capital,” said Neal. “It probably feels defensive, but it’s also playing offence in a lot of ways. It’s preparing the company for the future ground.”
He added the company wants to act quickly. All of the planning for the shipping season occurs in the second quarter and the company wants any future partner involved by then ideally.
TMAC operates a single gold mine in Nunavut, nearest to Cambridge Bay, but has identified at least two other deposits on its large land package.
I think when people look at TMAC, they’re going to see the lessons learned
Gabriel Gonzalez, analyst, Echelon Wealth Partners
Since it started producing gold in 2017, TMAC has faced consistent problems with its mill, and has never produced as much gold as expected. That’s created a cascading set of consequences, including higher costs and lower cash flows, which in turn meant there was less money to spend on exploration and expansion.
In 2019, it produced 113,000 ounces of gold through the first three quarters at around $1,100 per ounce, which put it at the higher end of the industry’s cost curve.
Terry MacGibbon, a former executive at nickel giant Inco Ltd., founded TMAC and acquired the property in 2013 from Newmont Mining Corp., which still controls around 30 per cent of the company.
Though TMAC garnered at least $1.5 billion in investments, its market capitalization has declined 75 per cent since 2017 to $335 million; and in December, MacGibbon retired as executive chairman.
“It’s a little disappointing just given the amount of effort, capital and time they’ve put in,” said Gabriel Gonzalez, an analyst with Echelon Wealth Partners.
TMAC chose its mill in part because it had a modular design that lent itself to shipping, but the system wasn’t sufficiently tested, according to the analyst.
Gonzalez said the company’s problems with its mill illustrate a pitfall of working in a remote, cold location. There are no nearby mines that can help process ore, and the ability to alter and change equipment are limited by the expenses and logistical challenges of a short shipping season when the ocean thaws.
Still, he characterized Nunavut as a strong jurisdiction for obtaining permits and mining, as evidenced by the success of Agnico-Eagle Mines Ltd., which has operated there for a decade.
“I think when people look at TMAC, they’re going to see the lessons learned,” he said. “The company really had to do a lot more work in planning.”
Tom Gallo, an analyst with Canaccord, noted TMAC controls a highly prospective land package and has a large resource base, estimated at 4.8 million ounces of gold, including other defined deposits.
“To unlock the true value of this asset, you need a more flexible balance sheet,” said Gallo. “More access to capital.”
He pegs TMAC’s net asset value at around $1 billion, far enough above its market value to fetch a premium and still be attractive to a buyer with better access to capital.
Neal, a former investment banker, had hinted in August the company was considering selling itself when he announced a US$40 million royalty sale that included provisions to undo the deal in case of a sale before 2021.
He said TMAC has made wise investments in surface infrastructure such as roads that will enable it to expand.
“In the Arctic the surface infrastructure is a really big part of it,” said Neal. “We may not have got it right with the (mill) plant, but we have very significant infrastructure … so there’s a good foundation there from which we could build.”