Lake Shore's $312M offer for West Timmins wins praise

Peter Koven, Financial Post Published: Friday, August 28, 2009

During the past five years, Lake Shore Gold Corp. revitalized the Timmins mining camp in Northern Ontario. But with its latest move, the Toronto-based company said it is on the path to something much bigger.

"Our goal is to build the next great Canadian gold company," said Tony Makuch, Lake Shore's chief executive.

Yesterday, Lake Shore unveiled a $312-million, all-stock deal to buy West Timmins Mining Inc. that won almost universal praise from investors of both companies.

While mining CEOs often have trouble explaining the logic of mergers to their shareholders, there was no problem this time: Lake Shore and West Timmins are already joint-venture partners working on an exciting gold discovery in the Timmins camp. A merger allows them to accelerate their work and combine their resources and knowledge base to make more discoveries in the future.

"Our financial advisors expressed that of all the mergers they do, this is the perfect one. It's almost too much common sense," Mr. Makuch said in an interview.

Lake Shore put itself on the map in 2004 when it discovered the Timmins mine, which is expected to go into commercial production next year. The discovery brought a flood of investor interest back to Timmins, a 100-year-old gold camp that Lake Shore believes is still greatly under-explored.

That thesis proved correct this summer, when Lake Shore and West Timmins found very high-grade gold on their jointly owned Thunder Creek property, which lies within 800 metres of Lake Shore's Timmins mine shaft. Shares of both companies have been on a roll ever since.

By consolidating the region, the companies think they can push Thunder Creek into production at least three years faster than they could as separate entities, and they expect to realize plenty of synergies through the use of Lake Shore's existing workforce and mine infrastructure.

With gold in a major bull market right now, both sides wanted to move as fast as possible with Thunder Creek, and this was seen as the way to do it.

"You're going to see no shortage of news flow and excitement coming out over the months to come," West Timmins chief executive Darin Wagner said on a conference call.

This merger just scratches the surface of Lake Shore's long-term plans.

By using its base in Timmins as a platform for growth, Mr. Makuch wants to build a mid-tier gold company that will reach 500,000 ounces of production in the next three to five years, and 1,000,000 ounces shortly after that.

"We're not building this [company] to sell it," he said.

"We're mining people. We want to build something we can sustain and pass on to future generations of people who work in the mining industry."

pkoven@nationalpost.com