Yamana Gold Inc. (TSX:YRI, Financial) (AUY, Financial) announced yesterday, through Marketwired, “that its wholly-owned subsidiary, Brio Gold Inc., has filed its final prospectus" concerning the secondary offering through which Yamana Gold will spin off Brio Gold for a total consideration of up to 192.5 million Canadian dollars ($142.5 million).
The corporate action will be executed through the distribution of purchase rights of Brio Gold common shares to Yamana’s shareholders instead of distributing cash in the form of dividends.
According to the company, "persons who acquire Yamana common shares on or after Nov. 23, 2016, will not be entitled to receive purchase rights on the Toronto Stock Exchange” and that its shares traded on the New York Stock Exchange “will not be quoted ex-rights”.
Yamana’s shareholders will have the option to purchase a total of up to 59,225,957 shares of Brio Gold at a price of CA$3.25 and become shareholders of the subsidiary that will operate as a standalone company after the spinoff.
The picture below shows how operations will be shared between Yamana Gold and Brio Gold after the spinoff.
The company said “the final prospectus also qualifies 1,230,770 Brio Shares at a price of CA$3.25 that are being sold on a firm commitment basis to each of CIBC World Markets Inc., National Bank Financial Inc., Canaccord Genuity Corp. and Cormark Securities Inc., as underwriters.”
Yamana shareholders who exercise their purchase rights will have direct exposure to Brio Gold’s operations that are localized in unfriendly jurisdictional countries. Therefore, they bear a higher risk than Yamana’s shareholders, as represented by the appreciation of local currencies versus the dollar in terms of higher operating costs and the economic crisis that Brazil is currently facing.
Yamana shareholders who do not exercise their purchase rights will only have exposure to Brio Gold indirectly, that is via Yamana. Yamana will maintain exposure to Brio through a retained equity interest. The company said it will hold “46.3% (on a non-diluted basis) of the issued and outstanding shares of Brio Gold.”
Yamana will use the proceeds of the spinoff to improve its financial situation by cutting debt, therefore strengthening its balance sheet. Once the spinoff is completed, Yamana will have much more control over its costs and over local currencies versus the dollar.
Yamana Gold is currently trading at $3.01, down 7 cents (or -2.27%) from the previous trading day. The gold stock gained 63% year to date and has been slightly downtrending since the end of July.
The EV/EBITDA is 7.90 and the price-book ratio (mrq) is 0.58.
Disclosure: I have no positions in Yamana Gold.
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