Argentina: More Gold M&A on
www.Top40GoldStocks.com and www.BNWnews.ca
As the excitement surrounding the $3.6 billion
buyout of tiny Andean Resources by Goldcorp Inc. subsides, investors are
wondering who’s up for grabs next among Argentina’s other emerging success
The task has been simplified by the fact that
only two gold juniors have to date made sufficiently impressive gold discoveries
to attract takeover speculation. One is Mansfield Minerals (TSX.V: MDR), which
has been quietly developing its Lindero gold discovery since as far back as
The other is Extorre Gold Mines (TSX: XG),
which burst onto the mining scene just over six months ago after it was spun-off
from high-flying Exeter Resource Corp. (TSX: XRC) (NYSE-AMEX: XRA). Extorre
inherited the high-grade Cerro Moro deposit from its parent company. However,
only a hostile takeover could wrestle Cerro Moro from Extorre any time soon,
according to the company’s management.
Having just completed a $40 million equity
financing, Extorre says it’s committed to building considerably more value into
the project by way of drill-defining plenty more high grade gold and silver. To
date, a total of 612,000 ‘indicated’ ounces of gold equivalent (gold and silver
combined) have been found in just one of the deposit’s many veins. All told,
Extorre is targeting a two-million ounce resource in the same proximity and
geological environment as Andean’s richly mineralized Cerro Negro deposit.
A third company worth mentioning is
Australia-based Troy Resources NL (TSX: TRY) (ASX: TRY), which is an existing
gold miner in Australia and Brazil. Troy is gearing up for its first gold pour
this autumn at its low-cost, high-grade Casposo gold/silver project in
Argentina’s mining-friendly San Juan Province.
This new mine is now fully funded and is
therefore not for sale, according to Troy’s president Paul Benson – at least not
for now. With 70 more drill targets, there’s plenty more upside potential for
the discovery of significant additional ounces in the ground, he says.
Furthermore, with a current reserve base of only 341,400 ounces of gold and 11.2
million silver ounces, it almost certainly does not meet the minimum size
threshold to interest much bigger gold miners at this time.
That leaves Mansfield Minerals sitting pretty.
The company has long groomed its ‘company-maker’ Lindero deposit for the right
suitor. With gold prices vaulting to record highs, the timing is excellent,
according to Mansfield’s president, Gordon Leask. This is why a bankable
feasibility study (a final blueprint for a mine) is underway.
However, the company has already published key
independently-assessed financial projections by way of a pre-feasibility study.
One that unequivocally attests to the viability of a future gold mine based on
current reserves of 1.9 million ounces. There’s also a further drill ‘inferred’
resource of one million ounces. This needs to be more clearly defined by way of
additional in-fill drilling to be considered completely reliable.
Hence, “advanced talks” with one or more
sizeable, expansion-minded gold mining companies are making headway, according
to Leask. This surely comes as no surprise to the various mining analysts who
have been covering this low-key gold story for nearly a decade.
Among the more recent enthusiasts is Joe
Mazumdar, a mining analyst for the Canadian stock brokerage firm Haywood
Securities Inc. After having crunched the key metrics in Mansfield’s
pre-feasibility study, Mazumdar wrote a research report last April on the
company encouragingly entitled: “Low Hanging Fruit.”
“The quality of the asset has been underpinned
by its simplicity and low technical risk. It is the equivalent of a ‘mine on
training wheels,’” he asserted in a 39-page report. Hence, his conclusion that
Mansfield is “a prime candidate for takeover” and that the company could fetch
“premiums of up to 250 per cent from its current price” in a takeover scenario.
But Lindero’s allure hasn’t gone unnoticed by a
number of gold-hungry producers, according to Leask, who declines to elaborate.
But he notes that there’s a scarcity of bargains in the junior gold space.
At least seven potential suitors, including
Yamana Gold Inc. (TSX: YRI) (NYSE: AUY) and Eldorado Gold Corp. (TSX: ELD)
(NYSE: EGO), have been identified by Haywood Securities among the world’s
relative few mid-tier gold miners. (Notably, Eldorado just lost out in the
takeover battle for Andean Resources after its US $3.4 billion proposal was
outbid by Goldcorp).
So what is it about Lindero’s economic modeling
that gives it so much credibility? Apparently, the deposit can produce around
160,000 ounces per annum in the first few years at a modest cost of US $373 an
ounce. This is because much of the high-grade mineralization is near surface.
And this scenario would offer an anticipated payback on capital costs within two
years, based on minimum gold prices of US $1,100.
Furthermore, the deposit also benefits from
being well suited to an open pit (quarry-like) heap leach (low extraction cost)
mining operation. All told, a minimum 9.5-year mine life will translate into
average annual yields of around 150,000 gold ounces for the bulk of the mine’s
life – and at an average cash cost of US $407 per ounce.
Additionally, the renowned engineering firm
that conducted the company’s pre-feasibility study, AMEC Americas Ltd.,
calculated a pre-tax net present value of US $490 million for the Lindero
deposit, assuming US $1,100 gold prices. (NPV is a pivotal decision-making
metric that is defined as the risk adjusted value of the deposit once all the
borrowed capital costs are repaid).
Another Canadian investment bank, Paradigm
Capital Inc., also views Mansfield as an obvious takeover candidate. In a
research paper discussing the company’s pre-feasibility study, senior mining
analyst Don MacLean made a good case for a likely takeover.
The Paradigm report, which was published last
March, noted that Mansfield only has approximately 44 million shares outstanding
and a low market capitalization. The report’s takeover conjecture comes into
clearer focus when considering the fact that Paradigm assigned an after-tax net
present value (NPV) of US $242 million to Lindero, based on US $1,100 gold
prices. By using a much more cautious after-tax evaluation than the pre-tax
version assigned by AMEC, Paradigm still was able to deduce that Lindero is
worth more than three times the actual value of Mansfield, itself.
The Haywood research report also points to the
fact that geopolitical considerations also weigh in Lindero’s favor. In
particular the project is located in a remote, economically underdeveloped
region of Salta Province. that is actively soliciting foreign investment. Hence,
Salta’s pro-mining government is actively soliciting foreign investment and is
therefore supportive of Lindero, according to Leask. Similarly, the federal
government is also onside, he adds.
This favorable situation, along with the
absence of any environmental challenges, explains why Leask expects a mining
permit to be issued before year’s end.
Mansfield Minerals, Extorre Gold Mines and Troy
Resources may be well ahead of the pack towards producer status. But a growing
number of other ambitious gold explorers are aggressively working to validate
their own gold discoveries in Argentina. All of which have a shot at becoming
the next ‘home run’ takeover success story.
The principals of
do not directly or indirectly own shares in any of the companies mentioned in