The Santa Gertrudis gold project — 180 km north of Hermosillo, in Mexico’s Sonora state — was discovered by Phelps Dodge in 1986 and advanced to open-pit, heap-leach production in 1991.
Between May 1991 and October 2000, the mine produced 564,000 oz. gold at an average grade of 2.13 grams gold per tonne.
Today, in and around the past-producing open pits, Santa Gertrudis has a National Instrument-43-101 compliant inferred resource of 13.50 million tonnes grading 1.28 grams gold, at a cut-off grade of 0.30 gram gold per tonne.
The Santa Gertrudis property and other nearby claims are owned by Animas Resources (TSXV: ANI) and include the past-producing Amelia mine, which according to historic records churned out 1 million tonnes averaging 2.88 grams gold per tonne.
The Santa Gertrudis claims are now the object of much desire of two competing companies, Marlin Gold Mining (TSXV: MLN) and GoGold Resources (TSX: GGD). On Nov. 25, Animas signed a letter of intent with GoGold to sell its Santa Gertrudis project for $3 million, plus a 3% net smelter return royalty for gold and silver and a 2% net smelter return royalty for all other metals.
At the time of the announcement, GoGold’s CEO Terry Coughlan said the company was excited about the prospect of putting Santa Gertrudis back into production, and that the acquisition fit the company’s strategy of adding projects with potentially low start-up costs that can be fast-tracked to production. The Santa Gertrudis acquisition would also dovetail nicely with GoGold’s Parrall tailings project in Chihuahua, Coughlan said, where the company is building a tailings operation that is expected to start production in May 2014.
The 1.41 sq. km Parrall property has a large tailings repository (21.3 million tonnes of tailings) left over from more than 300 years of operations at the historic Mina La Prieta silver and base-metal mine, GoGold says, and a prefeasibility study demonstrated the project could produce an average of 1.2 million oz. silver and 11,000 oz. gold annually for 12 years.
Marlin Gold was also interested in the project, however, and when it learned of GoGold’s letter of intent with Animas, says it presented a “far superior proposal” for the project. Whereas GoGold’s initial offer was for $3 million in staged payments, Marlin says, its own unconditional offer was for $5 million in cash and replicated GoGold’s NSR terms. “Our initial offer was forwarded to Animas on Nov. 28, and it increased GoGold’s cash consideration by $2 million to an aggregate cash of $5 million,” John Brownlie, Marlin’s CEO, clarifies in an email to The Northern Miner. “We determined that matching GoGold’s NSR consideration would be the way to go, since Animas was already comfortable with these figures.”
Like GoGold, Marlin is advancing projects elsewhere in Mexico. It owns 100% of the La Trinidad project in Sinaloa, 110 km southeast of Mazatlan, which includes the 95% completed Taunus deposit. Taunus was previously mined by Eldorado Gold (TSX: ELD; NYSE: EGO) from 1996–1998, and Marlin expects to start producing gold there by the first quarter of 2014. Marlin also owns the El Compass property in Zacatecas. Marlin has initiated the permitting process to restart the small-scale underground operation and plans to run a parallel exploration program to test for silver-bearing targets at depth.
After submitting its offer to Animas Nov. 28, Marlin says, Animas responded by saying that its board had determined that Marlin’s offer was superior, and had notified GoGold. According to Marlin, Animas’ management also said that under its agreement with GoGold the latter had three business days to respond, and that it would get back to Marlin by Dec. 4.
Marlin counters that it never heard back from the Animas board. “We didn’t hear anything until Dec 4, when we saw on SEDAR that Animas and GoGold had signed the definitive agreement,” Brownlie says. “We then informed of our offer to the shareholders.”
A week later, Marlin announced that it would prepare a takeover offer for the entire company. Under its proposal announced Dec. 9, Animas shareholders would receive 10¢ in cash for each share tendered — which represents a 150% premium to Animas’ closing share price as of Dec. 6, and a 168% premium to its 20-day, volume-weighted average price.
In response, Animas Resources’ president and CEO Mark Brown noted in a subsequent news release, also on Dec. 9, that Marlin’s proposal to its shareholders did not constitute a formal offer, and that it also contained “at least one factual misstatement.” Animas says it had discussed the first proposal Marlin offered in November on several occasions, and had also asked Marlin to remove its requirement for further due diligence, as GoGold had, before signing the agreement.
Animas also stated that Marlin “did not alter their [initial] offer, and Animas’ board elected to proceed with the offer from GoGold, who were ready to conclude the transaction in an expeditious manner by exercising their right to match the Marlin bid.”
“Our initial offer did not include a technical due diligence requirement,” Brownlie insists. “That’s misleading. We just needed confirmation that the claims are owned by their subsidiaries, and we needed to know they were in good standing. So it was a legal due diligence, and no due diligence on the technical side.”
For its part, Animas argues that its major shareholders have felt for some time that the company’s shares have been undervalued, and was looking for a group that would put the Santa Gertrudis project back into production.
“After having several groups visit the project, GoGold made the first offer, and we began negotiating with them and got a good understanding of their ability to put this mine back into production,” Brown outlines in the news release. “Understanding their production ability was a key component to the transaction and Animas agreed to take back a reasonably high 3% NSR royalty from future production. The major shareholders of Animas have stated in the past that simply cashing out of the Animas shares at a time when we were significantly undervalued did not make sense.”
Animas management owns 7% of the company, and at press time, Animas shares were trading at 7.5¢ per share within a 52-week range of 2.5¢ to 8.5¢ per share. The company has 72 million shares outstanding.
As for Santa Gertrudis, Phelps Dodge sold part of the property to Campbell Resources in 1994 for US$10 million, but the company stopped mining and processing activity due to low gold prices during the late 1990s. In addition to Santa Gertrudis, Animas owns the Desierto property, a large land position in the Sonora gold belt of Mexico’s western Sonora state along the Arizona–Sonora megashear. Animas identified the 270 sq. km property during the second quarter of 2011 and started reconnaissance exploration, which led to the discovery of the Desierto prospect.
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