Why SSR Mining Stock Dropped Today
Key Points
SSR Mining will buy Roxmore Resources for $464 million.
Then it will spin off all the assets that it doesn't want.
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SSR Mining (NASDAQ:SSRM) stock tumbled 7.8% through 12:55 p.m. ET Tuesday after announcing its next big purchase of a rival gold-mining concern:
It's buying Canadian gold miner Roxmore Resources for $464 million, paid all in cash.
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There's gold in them thar hills!
SSR Mining explains its reasons for the acquisition thusly:
Roxmore owns a "multi-million ounce" Converse Project just three-and-a-half miles from SSR's own Marigold Complex in Nevada. Buying Roxmore will enable SSR to operate the two mines as one single, "contiguous asset," reducing the combined costs of operation by as much as $200 million annually, and adding 150,000 to 170,000 ounces to SSR's annual gold production.
By 2033, the company thinks this acquisition could help it produce 400,000 total ounces annually -- and up to 450,000 in peak years.
Needless to say, SSR expects this to be "highly accretive" to its profits.
What's next for SSR Mining stock
Before that can happen, though, SSR must complete its acquisition. Management says it's offering C$6.75 per Roxmore common share (about $4.75, U.S.). It then plans to spin off most Roxmore assets other than Converse, retaining only a 15% interest in the company's Rattlesnake Hills Project, Shabu River Project, and Newton Property.
Further down the line -- but not before the early 2030s -- SSR notes it will need to invest about $800 million to $900 million to bring Converse production online. But until then, capital expenditures on Converse should be minimal.
Long story short, this is a rather complex transaction (which may confuse some investors). It adds to SSR's assets, drains its cash reserves a bit, but won't immediately affect revenue, earnings, or free cash flow. I think it's probably a plus for SSR stock -- but that may not become evident for some time.
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Rich Smith has positions in SSR Mining. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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