Keegan Resources Joining Forces with PMI Gold Corporation

on Dec 7, 2012

On 5 December 2012, Keegan Resources (TSE:KGN, NYSEAMEX:KNG) and PMI Gold Corporation (ASX:PVM, TSE:PMV) announced that they were going to merge as equals. The two junior miners, whose principal gold projects are located in Ghana, will create a gold development company with a focus on West Africa.

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**Keegan Resources Merges with PMI**
As noted in Keegan’s press release, the two mining companies agreed to combine their respective businesses in a new company to continue operating under the name Asanko Gold Inc. With the Toronto-based Keegan being the surviving corporate entity, its shareholders will not need to exchange their shares, whereas each PMI shareholder will receive 0.21 shares in the new company for each PMI share held. Keegan and PMI shareholders however will each own about 50 percent of the new company.

Keegan’s financial adviser on the merger is Canaccord Genuity and its legal adviser is McMillan LLP. PMI is being advised by Macquarie Capital Markets Canada Ltd and Stikeman Elliott LLP.
As Reported by Bloomberg, Keegan’s offer represents an 11 percent premium, based on the companies’ closing share price on December 5. Keegan declined 4.4 percent to C$3.74 (£2.34) in Toronto trading, whereas PMI Gold gained 8.1 percent to 80 Canadian cents, the biggest intraday increase since August 28.

**Asanko Gold**
The new company, Asanko Gold, will maintain its listings on the Toronto Stock Exchange and on the NYSE MKT, and will also apply for a listing on the Australian Securities Exchange, where PMI is currently listed. The combined company will have approximately $340 million in cash and two Ghanaian mines located within 15 kilometres of each other. Keegan’s CEO Peter Breese will become Asanko’s CEO, whereas the CEO of PMI Gold, Collin Ellison, will be president of the newly-formed entity. “This is a 1 + 1 is equal to 3 or 4,” noted Mr Breese, as quoted by the mining news website Mineweb.

!m[The New Company To Focus On Ghanaian Gold](/uploads/story/983/thumbs/pic1_inline.png)The merger is subject to shareholder approval, with PMI and Keegan shareholders scheduled to cast their votes on the same day in late February 2013, as noted in Keegan’s press release.
Ghanaian Projects
The new company will include PMI’s Obotan project, which is expected to produce about 200,000 ounces annually starting in 2014 and Keegan’s Esaase mine, with expected output of 150,000 to 200,000 ounces by 2017. “We expect significant synergies through the joint development of Obotan and Esaase,” noted Mr Breese, as quoted by Bloomberg. Both projects are located in Ghana, where major miners such as Newmont Mining Corporation (NYSE:NEM) and Anglogold Ashanti (NYSE:AU) also have operations.

Mineweb reports that the $340 million in cash will be enough to fully fund one of the two projects, namely Obotan, which is at a more advanced stage of development and has a completed feasibility study. Asanko Gold is expected to continue a prefeasibility study of Esaase, but will also consider using Obotan’s processing facilities and other synergies to cut costs. Mineweb quotes Mr Breese as saying that Asanko Gold would not build both projects at the same time, likening the prospect to “commercial suicide.”


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