San Gold Corp. and a Toronto mining company have agreed to merge their operations in a move company officials say will double San Gold's annual production.
San Gold president Gestur Kristjansson said Tuesday the merger will lead to the reopening of Kerr Mines' mothballed Copperstone mine in Arizona, which has the capacity to produce 50,000 to 60,000 ounces of gold per year.
That, combined with the 50,000 to 55,000 ounces from San Gold's own Rice Lake mine near Bissett, will give the combined company 100,000 to 110,000 ounces of gold per year.
"It gets us up to that mid-tier-producer level...," Kristjansson added.
"Once this transaction has been completed, the combined entity will have a much stronger market presence that either company could not have achieved on its own," said Kerr Mines chairman Stephen McIntyre.
Kristjansson said the merger, which still requires shareholder and Toronto Stock Exchange approval, could mean he and one or two other San Gold executives could end up either relocating to Toronto or spending more time commuting to and from there. That's where new CEO Greg Gibson, who is also CEO of Kerr Mines, has his office.
But it should have no impact on the 315 employees who work at the Rice Lake mine and two other smaller mines in the area, he added.
The merger agreement comes after the two companies signed a non-binding letter of intent in July. San Gold has been struggling to become profitable for some time, and has been under pressure to perform by investors and debt holders.
In a news release last week announcing its second-quarter results -- it posted an $8.5-million loss compared with a $3.6-million loss in the same period last year -- Gibson said San Gold has completed a comprehensive overhaul of its Rice Lake operations and implemented a new mine plan that will see it mine less ore and produce less gold, but at substantially less cost.
Another benefit of merging is they can apply the knowledge, skills and equipment developed at the Rice Lake mine to other mining projects, including the reopening of Copperstone, Kristjansson said.
Under the terms of the merger deal, Kerr Mines shareholders will be entitled to an exchange ratio of three common shares of San Gold for each common share of Kerr Mines. San Gold's shares (TSX:SGR) closed Tuesday up half a cent to 13 cents, while Kerr Mines shares (TSX:KER) gained three and a half cents to close at 38 cents.