Teck Resources Ltd. (TSX:TCK.B) said Monday it will pay $8.50 cash for each SilverBirch (TSX:SBE) share plus one share of a new spin-out firm, to be called SilverWillow Energy Corp.
Teck will also contribute $25 million of working capital to SilverWillow.
Once the deal closes, Teck would have 100 per cent interests in the Frontier and Equinox projects, as well as a nearby property called Twin Lakes.
SilverWillow, to be staffed by the current SilverBirch team, would have the early-stage Audet, Birch Mountains and Jordan properties.
The move expands Teck's oilsands business and allows it to use the truck-and-shovel open-pit mining expertise it's honed by mining coal, copper and zinc.
"The Frontier ownership structure is simplified, our exposure to oilsands leases not amenable to mining is reduced and Teck now has the opportunity to explore new potential partnerships and other alternatives to move Frontier towards development," CEO Don Lindsay said in a release.
All of the assets left with SilverWillow, on the other hand, require in-situ techniques in which steam, solvents or both are pumped underground to melt the bitumen so it's thin enough to flow to the surface.
The cash portion of the deal marks a 31 per cent premium to the average volume-weighted SilverBirch share price over the past 20 days on the Toronto Stock Exchange.
On Monday afternoon, SilverBirch shares soared more than 33 per cent to $9.60 on the TSX. Teck shares dropped 1.7 per cent, or 64 cents, to $37.71.
The deal mimics a transaction 15 months ago that brought SilverBirch into existence.
When UTS Energy Corp. was acquired by Total E&P Canada in 2010, all of its lands outside its flagship Fort Hills oilsands mine were spun out into SilverBirch.
Teck and Total now each hold a 20 per cent stake in the yet to be developed Fort Hills project, controlled by Suncor Energy, (TSX:SU), Canada's largest oil and gas company.
SilverBirch began exploring strategic deals just a few months after its inception in the fall of 2010, CEO Howard Lutley said on a conference call to discuss the proposed deal.
At first, the focus was on studying SilverBirch's properties to find out how much oil they contain.
"By sort of mid-year we had some additional information. We had a pretty good understanding of the scale of the opportunity of Audet," said Lutley, adding that around the same time it had come up with an updated cost estimate for Frontier and Equinox.
While SilverBirch was negotiating potential changes to its partnership agreement with Teck, financial advisers were undertaking a "low key" search for other opportunities for deals.
"Just two days before Christmas, Teck came back with the offer that we were looking at now, rather than proceed with the partnership approach," said Lutley.
SilverBirch's management team would move over to SilverWillow, which would trade on the TSX Venture Exchange.
"So you'll have the same experienced leadership team with its proven exploration and development record working for the shareholders in SilverWillow," said Lutley.
"We'll also have a work plan focused on doing what we do best," which is exploring properties, moving them through regulatory and engineering stages and deciding whether to advance them, he added.
The transaction has the support of SilverBirch's board and two major shareholders, and is expected to close in late March or early April.
Teck is a diversified miner producing steelmaking coal, zinc, copper and energy. The company's energy business includes the 20 per cent stake in the Fort Hills project and a 50 per cent interest in the Frontier project in the Athabasca region of northern Alberta.
The Frontier project is expected to produce more than 277,000 barrels of bitumen a day and about 2.8 billion barrels are slated to be produced over the anticipated 30-year life of the project.