Shares of INV Metals (INV-T) surged 46% to 16¢ on news the Toronto-based company plans to acquire the Quimsacocha gold project in Ecuador from Iamgold (IMT-T) in a move it hopes will take it from a junior exploration company to an advanced-stage development company.
Under the proposed arrangement Iamgold will receive 150 million shares—or between 40% and 45%—of INV Metals in a deal worth about $16.5 million based on the junior’s closing share price on June 20. The acquisition is subject to INV Metals raising $20 million in an equity offering priced at 20¢ a share—bringing the total value of the deal to about $30 million (based on 150 million shares issued to Iamgold multiplied by the assumed equity financing price).
Iamgold will also receive milestone payments of $5 million worth of INV shares once the junior signs an exploitation contract with the Ecuadorian government and another $2.5 million worth of shares once the project reaches commercial production.
The Quimsacocha project brings with it an attractive indicated resource of 3.3 million ounces of gold, but its location in Ecuador makes it less appealing to some. The South American nation was recently ranked among the world’s worst jurisdictions for mining investments in the Fraser Institute’s annual survey of mining companies—along with Vietnam, Indonesia, Kyrgyzstan, the Philippines, India, Venezuela, Bolivia, Guatemala and Honduras. Iamgold suspended fieldwork at Quimsacocha in 2009.
Terry MacGibbon, chairman of INV Metals, said in a prepared statement that during the company’s due diligence management met with senior government officials and “are confident that the President and his government are very supportive of the development” of the project.
“The form of Ecuadorian exploitation contracts has been mandated by the government and all new mine developments will be individually negotiated within that format to produce property specific exploitation contracts that will allow development and mining,” he continued. “The company believes that the economics of the project have potential to prove to be positive within the current Ecuadorian fiscal regime. All of the relevant permits are in place to allow for the commencement of advanced exploration on the property immediately following the closing of the acquisition.” (MacGibbon could not be reached for comment by presstime.)
Quimsacocha, about 30 km southwest of Cuenca, Ecuador’s third-largest city, is a high-sulphidation epithermal gold-copper-silver deposit with a high-grade core surrounded by a lower grade shell within Upper Miocene volcanic flows and volcaniclastics.
Both indicated and inferred resources have high-grade zones that contain the majority of the gold resource and INV says it is considering both open-pit and underground mining scenarios.
Indicated resources currently stand at 32.6 million tonnes grading 3.2 grams gold per tonne for 3.3 million ounces of contained gold, 22 grams silver per tonne for 22.7 million ounces of contained silver, and 0.20% copper for 143.1 million pounds of copper.
Inferred resources add 2.3 million tonnes grading 2.2 grams gold for 0.2 million ounces of gold, 27 grams silver for 2 million ounces of silver, and 0.22% copper for 11.2 million pounds of copper.
The resource estimate was based on a 0.4 gram gold cut-off grade and a long-term gold price of US$1,500 per oz., a silver price of US$26 per oz., and a copper price of US$3.50 per lb.
The mineralized zone hosting the resource has a strike length north-south of about 1,600 metres by 120 metres to 400 metres east-west and up to 60 metres thick beginning from about 120 metres below surface.
Quimsacocha’s alteration footprint covers an area of roughly 12 km by 6 km, the company says, noting that epithermal gold deposits similar to the Quimsacocha deposit “tend to cluster within large alteration zones, and are also frequently associated with porphyry copper-gold type deposits.”
INV has earmarked $15 million for exploration over 18 months.
The United Nations was the first to carry out exploration in the area in the late 1970s. Cogema acquired the property in 1991 and in 1993 entered into an exploration joint-venture with Newmont Mining (NEM-T, NEM-N) and TVX Gold. Iamgold acquired the project in 1999 and started drilling in 2003. It discovered Quimsacocha a year later when drilling returned an intercept of 102 metres averaging 9.1 grams gold, 46.9 grams silver and 0.4% copper.
Iamgold drilled 74,625 metres in total and completed a pre-feasibility study in 2008, but no significant exploration work has been conducted on the property since then.
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