Lake Shore Gold (LSG-T, LSG-X) is selling all of its Mexican properties to Revolution Resources (RV-T) so that it can keep its management team and finances focused on its Canadian assets.
In return Lake Shore will receive 20 million shares of the Vancouver-based junior explorer, royalty interests of between 2% and 3.5% on four different projects in Mexico and $5 million in cash or shares by the end of 2017. At the close of the transaction Lake Shore Gold will own 26.7 million shares, or 22.7% of Revolution Resources.
“If Lake Shore was able to sell the 20 million common shares today, the value would be approximately $2.2 million before tax,” Brian Quast of BMO Capital Markets writes in a note, adding that “given the small size and lack of immediate cash, BMO Research views the transaction as inconsequential to Lake Shore’s valuation.” But the analyst says that he views Lake Shore Gold’s increasing focus on its Canadian assets as a positive.
For its part, the management at Revolution Resources sees the deal as a major coup, given the state of current markets and the difficulties that junior explorers face staying afloat. “For juniors like ourselves, not owning 100% in this environment makes it very, very challenging to attract risk capital,” president and CEO Aaron Keay says in an interview. “Getting 100% gives us flexibility and optionality for the portfolio.”
Revolution Resources has over 4,000 sq. km in Mexico and “a significant portfolio that could have taken years to amalgamate through carefully and strategically doing deals,” he says.
Keay also points out that the transaction with Lake Shore Gold puts the company in a great position to get multiple deals done, and admits that Revolution Resources has already fielded calls about its portfolio of Mexican assets. He says the incoming calls vary from household names from the senior side looking at potential joint-venture option agreements to private Mexican miners looking for mill feed.
Keay notes that over the last 18 months the industry has watched a lot of senior and mid-tier companies moving into Mexico, in what he says represents a “flight to safety” due to the country’s relative lack of political risk and environmental permitting headaches, compared to mining jurisdictions in Africa and parts of South America. As examples he cites Vale’s (VALE-N) US$16-million investment in the Santana property, a copper-gold porphyry target in Mexico’s Sonora state owned by junior Corex Gold (CGE-V); Osisko Mining’s (OSK-T) option and joint-venture agreement to earn up to a 75% interest in Tarsis Resources’(TCC-V) Erika property in Mexico’s Guerrero state; and Capstone Mining’s (CS-T) option to acquire up to a 70% interest in Westminster Resources’ (WMR-V) Cumbral-San Bartolo prospect area in Sonora.
The properties Revolution Resources has acquired from Lake Shore Gold are located in some of Mexico’s most prolific districts, Keay says, including the Universo property, which stretches 100 km in length and 35 km in width, and is surrounded to the north by Goldcorp’s (G-T, GG-N) Camino Rojo gold-silver deposit and the Penasquito gold-silver-lead-zinc mine. Grupo Mexico’s Charcas zinc-copper mine, Mexico’s largest zinc producer, lies south, and First Majestic Silver’s Real de Catorce silver project lies east. New Gold’s (NGD-T) Cerro San Pedro gold-silver mine is 100 km farther south. Revolution Resources says it has identified 25 surface showings, prospects and anomalous zones on the property. Under the transaction, Lake Shore Gold will have a 2% net smelter return royalty (NSR) on the property.
The second property is located on the Montana de Oro project, 25 km south of Coeur d’Alene Mines’ (CDM-T, CDE-N) Palmarejo mine, and 20 km north of Pan American Silver’s (PAA-T, PAAS-Q) Alamo Dorado mine. Revolution says that 17 areas of gold mineralization and a carbonate-replacement discovery at La Concepcion have been identified on the property, in addition to four undrilled copper porphyry style targets with high-grade copper and gold values. Lake Shore will keep a 3.5% NSR on Montana de Oro.
The third property contains the La Bufa project, 30 km east of Goldcorp’s El Sauzal mine, and is centered on the historic Carmen copper-gold mine. According to historic records, the Carmen mine produced 1 million tonnes grading 2.5% copper, 2.9 grams gold per tonne and 2.8 grams silver per tonne between 1947 and 1958. La Bufa also includes the historic Golondrina and San Fernando mines and five of Revolution’s newly identified prospects. Lake Shore will hold a 2.5% NSR on the property.
Lake Shore also gets a 2% NSR on the Lluvia gold project, 30 km east of the Montana de Oro property and located along the same east–northeast trend as the La Bufa property. According to Revolution, historic records indicate that between 1898 and 1915, and again during the 1950s, about 100,000 tonnes of ore was mined averaging 95 grams gold per tonne and 865 grams silver per tonne.
Lake Shore has 415.7 million shares outstanding, and Revolution has 91 million shares.
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