Near Surface Deposit in Argentina May be Next
SOURCE:[Prospecting News] On May 21, 2014 Rio Alto Mining (RIOM-NYSE) announced that it would buy Sulliden Gold (SUE-TSX.V) in a deal valued at $300-million, creating a Peru-focussed gold miner.
The Transaction combines Rio Alto's La Arena gold oxide mine and sulphide copper-gold deposit with Sulliden's Shahuindo gold development project located in northern Peru.
The combined companies will now form a mid-tier gold producer with near-term production capacity of 300,000 ounces of gold per year at cash costs of about $550/oz.
The buyout values Sulliden at $1.12 per share, representing a 43 % premium to the stock’s May 20 close on the Toronto Stock Exchange.
Global merger activity in the gold sector is heating up as Osisko Mining (OSK-TSX) is selling its lead assets to Yamana Gold (AUY-NYSE) and Agnico-Eagle Mines (AEM-NYSE) for $3.9-billion.
The closest comparable to Sulliden’s Shahuindo Deposit in Peru is the permitted construction ready near-surface Lindero gold deposit in Argentina, 100% owned and operated by Goldrock Mines (GRM-TSX.V).
Lindero has a 2.1 million M&I gold ounces vs. Sulliden’s 2.4 million, cash costs of $647 vs. Sulliden’s $552 and a Capex of $155 million vs. Sullivan’s of $133 million.
The notable difference between the two companies is the Rio Alto buy-out values the Sulliden asset at $146 per oz, while the Goldrock asset is currently being valued at $16 per oz, indicating significant upside for Goldrock shareholders – with or without a buyout.
Goldrock’s President and CEO Paul Matysek has a track record of creating wealth for institutional and retail investors. He sold Potash One in 2011 for $434 million, and he was also the CEO of Energy Metals, which morphed from a market capitalization of $10 million in 2004 to approximately $1.5 billion in 2007. Matysek is a rare mining executive with a strong track record in geology, financing and marketing.
The Lindero gold deposit is located in Salta province, northwestern Argentina. GRM has been granted the primary overriding mining permit by the Salta provincial government to develop an open pit, heap leach gold mine.
The recent Feasibility Study anticipates production at an initial throughput rate of 15,000 tonnes per day (TPD), increasing to 18,750 TPD during the first year of operation.
The Salta provincial authorities recently approved the building and electrical permits that Goldrock requires to commence construction at Lindero. All plans have been reviewed and approved by COPAIPA, the professional engineering institution that overlooks all construction in Salta province.
Goldrock has also solved its power issues in a simple and cost effective way by setting up a “virtual gas pipeline” with REMSA, the owner of the regional Gasoducto de la Puna gas pipeline which was constructed by the Salta government to accelerate the development of the mining industry in Argentina.
REMSA has contracted to transport of 38,000 cubic metres of natural gas per day to the Lindero gold mine, using four trailer trucks. GRM has an option to commission the transport of an additional 5,000 cubic metres per day if required.
The transport point is about 160 kilometers by road from the Lindero gold mine site. A "Virtual Gas Pipeline" is commonly used in Argentina.
"With the signing of this critical energy contract Goldrock continues to advance the Lindero project and the de-risking of the construction schedule,” stated Matysek.
The Rio Alto-Sulliden merged entity will have a market capitalization of about $660 million with $45 million in cash, and now greater access to low-cost capital to fund the construction and expansion of the Shahuindo mine.
Sulliden Gold surged 33% to $1.04 (with a market cap of $327 million) on news of the buyout. Goldrock’s near surface asset in Argentina may offer a similar synergy to a mid-tier gold producer.
Goldrock is trading at $0.42 with a market cap of $33.5 million.