July 5, 2016 / 8:17 PM / a year ago

UPDATE 3-Centerra Gold to buy Thompson Creek Metals for $1.1 bln including debt

(Adds CEO interview, background, deal details)

By Nicole Mordant

July 5 (Reuters) - Canadian mining company Centerra Gold agreed on Tuesday to buy U.S. -based miner Thompson Creek Metals for around $1.1 billion in shares and cash, including paying off nearly $900 million of debt, to expand its operations in North America.

Centerra, whose main asset is the Kumtor gold mine in Kyrgyzstan, has wanted to reduce its exposure to the impoverished Asian nation, which has in recent months escalated its rhetoric against the miner as it guns for a bigger slice of its profits.

Denver, Colorado-based Thompson Creek’s main asset is the Mount Milligan copper and gold mine in British Columbia.

“Half of the value of all our assets will now be domiciled in Canada. I really think we have absolutely transformed the company in a very favorable way,” Centerra Chief Executive Scott Perry said in an interview.

Thompson Creek last November hired Moelis & Co and BMO Capital Markets to look at alternatives, including debt refinancing and restructuring and asset sales, after the company’s debt ballooned following the 2010 purchase of Mount Milligan and the cost of developing it into a mine.

In December, Deutsche Bank analyst Jorge Beristain described Thompson Creek’s debt as “unsustainable” in a note to clients and said the company was “quickly approaching an end-game”. The company was also hit by weaker gold and copper prices.

REPAY ALL NOTEHOLDERS

In terms of the deal, Centerra will redeem all of Thompson Creek’s secured and unsecured notes at their call price plus accrued and unpaid interest for $889 million.

Perry said Centerra opted to pay off all the noteholders to ensure “deal certainty”.

All of Thompson Creek’s common shares will be exchanged for Centerra shares at a ratio that implies a value of 79 Canadian cents per Thompson Creek share - a premium of 32 percent on the stock’s closing price on July 4 for a value of $140 million.

Both company’s shares were halted before the deal was announced.

To fund the transaction, Centerra said it would raise C$170 million ($130.76 million) through a bought deal, pay $460 million from cash on hand at Thompson Creek and Centerra, and raise $300 million from a new debt facility.

Centerra also has a commitment from mining financier Royal Gold Inc to restructure Royal’s so-called streaming finance deal with Thompson Creek.

Royal had helped finance the construction of Mount Milligan in exchange for 52.25 percent of its future annual gold output. That will now be amended to 35 percent of annual gold output plus 18.75 percent of copper production.

Thompson Creek shareholders will vote on the transaction in September.

$1 = 1.3001 Canadian dollars Reporting by Nicole Mordant in Vancouver; Editing by Chris Reese and Andrew Hay

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