Lake Shore Gold (LSG-T, LSG-N) is selling all of its Mexican properties to Revolution Resources (RV-T) in order to keep its management team and finances focused on its Canadian assets.
In return Lake Shore will receive 20 million common 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 about 26.7 million shares or about 22.7% of Revolution Resources.
“If LSG were 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 brief note summarizing the deal. “Given the small size and lack of immediate cash, BMO Research views the transaction as inconsequential to LSG’s valuation. However, BMO Research views the increasing focus on the company’s Canadian assets as positive.”
Judging by some of its neighours, Lake Shore's Mexican properties offers promise. Its Mexican portfolio includes the Universo property, which stretches 100 km in length and about 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. To the south lies Grupo Mexico’s Charcas zinc-copper mine, Mexico’s largest zinc producer, and to the east First Majestic Silver’s Real de Catorce silver project. New Gold’s (NGD-T) Cerro San Pedro gold-silver mine is about 100 km further to the south. According to Revolution Resources' website, the last known drilling on the Universo property was about 18 years ago and so far the company has identified about twenty-five surface showings, prospects and anomalous zones on the property. Under the transaction, Lake Shore Gold will have a 2% net smelter return on the property.
The second property is the Montana de Oro project, about 25 km south of Coeur d’Alene’s (CDM-T, CDE-N) Palmarejo mine, and 20 km north of Pan American Silver’s (PAA-T, PAAS-Q) Alama Dorado mine. According to Revolution, seventeen 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, Revolution says in its corporate literature, the Carmen mine produced about 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.
Finally, Lake Shore also gets a 2% NSR on the Lluvia gold project, about 30 km east of the Montana de Oro property and situated 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 there averaging 95 grams gold per tonne and 865 grams silver per tonne.
At presstime, Lake Shore was trading at 86¢ per share within a 52-week range of 63¢ and $1.73, while Revolution Resources was trading at 12.5¢ a share within a 51-week range of 8¢ and 45¢ per share.
Lake Shore has 415.7 million shares outstanding and Revolution 91 million shares.
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