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UPDATE 1-Kirkland Lake to acquire Newmarket Gold in growth push

(Adds details on transaction and operations, comments from executives on conference call, stock prices)

By Susan Taylor

TORONTO, Sept 29 Canada's Kirkland Lake Gold will acquire Australian miner Newmarket Gold for about C$1 billion ($764 million) in stock, creating a mid-tier producer poised to grow, the companies said on Thursday.

The transaction is somewhat of an outlier, as gold mining executives say the rising price of bullion has made acquisitions costlier for a sector focused on financial discipline.

The combination makes "something we can build from," Kirkland Lake Chief Executive Officer Tony Makuch said on a conference call. Kirkland Lake will hold 57 percent of the new company, which will have the same name, and Newmarket shareholders will get 43 percent.

Shares of Kirkland Lake fell 6.5 percent to C$10.39 on the Toronto Stock Exchange after the deal was announced, while Newmarket gained 0.8 percent to C$4.87.

The transaction comes just 10 months after Kirkland Lake acquired fellow Canadian gold miner St Andrew Goldfields for about C$178 million in stock, creating an Ontario-focused producer with four mines and two mills.

The new Kirkland Lake will operate seven underground mines and five mills, producing more than 500,000 ounces of gold in 2016.

Output will be anchored by Kirkland Lake's Macassa and Taylor mines in Ontario and Newmarket's Fosterville mine in Victoria, Australia. Exploration around existing sites is expected to drive production growth, said Makuch.

Management said the combined company, with a market capitalization of about C$2.4 billion, would get increased analyst coverage and valuation.

"We see significant upside here on valuation," Newmarket CEO Doug Forster said on the conference call. "That's really one of the motivations for us."

Newmarket shareholders will receive 0.475 shares of the combined company for each share held. The companies said the deal valued Newmarket at C$5.28 per share, a 9.4 percent premium to its close on Wednesday.

Shareholders of both companies must approve the deal, which the parties expect to close in the fourth quarter.

Luxor Capital Group, which holds about 15.7 million Newmarket shares, said in a release that it supported the deal.

Foster said the deal also had the support of Canadian fund manager Eric Sprott, Kirkland Lake's non-executive chairman with stakes of about 6.7 percent in that company and 15 percent in Newmarket Gold. Sprott will be chairman of the combined company. ($1 = 1.3091 Canadian dollars) (Additional reporting by Arathy S Nair in Bengaluru; Editing by Lisa Von Ahn)

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