VANCOUVER — It can be tough for junior companies to get market traction these days, but one angle that can still make shares pop is the age-old option agreement with a large-cap producer. And that’s the story for Columbus Gold (TSXV: CGT; US-OTC: CBGDF) at its multi-million ounce Paul Isnard gold project in northwest French Guiana, 180 km west of Cayenne.
On Sept. 18 Columbus announced an option agreement with Moscow-based producer Nordgold (LSE: NORD) that could see the larger company earn a 50.01% interest in certain licences at Paul Isnard. With the deal Nordgold would pay Columbus $4.2 million in cash by May 2014, and earn its controlling interest by taking the project through to the feasibility stage and investing no less than US$30 million in staged work expenditures at the site over the next three years.
In the event that the joint-venture partners advance Paul Isnard to construction and commercial production, Columbus would retain the option to fund its pro-rated development costs, or allow Nordgold to sole fund — in which case, Columbus’ interest would be diluted according to the gold reserves contained in a feasibility study.
For example, Columbus reports that reserves totalling 2 million oz. would require Nordgold to spend $160 million to dilute Columbus to a 25% interest, while 3 million oz. would require Nordgold to spend $210 million to gain a 75% interest. With 4.5 million oz. Nordgold would have to spend $270 million.
The agreement contains a standstill condition under which Nordgold may not obtain more than 20% of Columbus’ outstanding shares in the short term, and will vote any shares it does own in favour of proposals put forth by Columbus’ management. Nordgold does not currently hold equity in Columbus.
“This agreement is exceptional not only by its requirement for an experienced and world-class mine developer to fund a considerable amount of spending, but also for the fact that [our] shareholders retain half the project at feasibility,” Columbus CEO Robert Giustra said. “In addition, the deal provides us with the option to participate in mine construction or delegate it to Nordgold for a resulting significant and valuable equity interest for Columbus Gold shareholders in a large, producing mine.”
Though Paul Isnard covers 149 sq. km over eight mining concessions, the area of interest for Nordgold is the Montagne d’Or gold deposit, which holds inferred resources totalling 117 million tonnes grading 1.43 grams gold per tonne for 5.4 million contained oz. at a 0.3-gram gold cut-off — or 58.1 million tonnes of 2.22 grams gold for 4.15 million contained oz. at a 1-gram gold cut-off.
Gold mineralization at Montagne d’Or is hosted within a 400-metre-thick sequence of intercalated felsic and mafic volcanic and subordinate volcaniclastic rocks that strike east–west and dip steeply south. The near-surface gold resources are contained within four closely spaced stratiform, sub-parallel, east- to west-striking and south-dipping sulphide-mineralized horizons.
“Today, there are few high quality development projects available to gold companies worldwide,” Nordgold CEO Nikolai Zelenski said. “I believe Montagne d’Or exhibits all the characteristics necessary to become one, and we are pleased to have an opportunity to develop it together with [Columbus]. I am confident that our extensive experience of operating in four diverse countries, strong track record of developing new reserves and building mines, and our experienced management team will ensure a successful implementation of the project.”
Nordgold operates its Taparko gold mine in Burkina Faso; Lefa mine in Guinea; Suzdal mine in Kazakhstan; and the Berezitovy, Buryatzoloto, Neryungri, Aprelkovo and Gross mines in Russia.
The company produced 717,000 oz. gold in 2012, and reports global proven and probable reserves of 341 million tonnes grading 1.15 grams gold for 12.7 million contained oz. gold.
Columbus saw heavy trade volumes during the two days following the announcement, as nearly 12 million shares traded hands. During trading Shares shot up 42%, or 13¢, before closing at 35.5¢ at press time.
Shares have traded between 16¢ to 45¢ over the past year and had been hovering near four-year lows throughout mid-year. The company had US$8.4 million in working capital at the end of June. With 102 million shares outstanding at press time, the company has a $44-million market capitalization.
“This agreement clearly demonstrates our continued dedication to protecting our shareholders by transacting at the project level and not diluting the company, which also holds our large and prospective Nevada gold portfolio,” Giustra said.
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