Vancouver - For the second time this year, the people behind CGA Mining (CGA-T, CGX-A) are spinning off African assets to concentrate on the Philippines.
In August, Australia-based CGA Mining spun-off of its Nigerian Segilola gold project and its Zambian Mkushi copper project into Ratel Gold (RTL-T) to corporately separate the exploration properties from its 200,000-oz.-per-year Masbate gold mine in the Philippines.
Now, Ratel Gold's interests are being split up into Ratel Group, with the African assets, and St. Augustine Mining, which will work to advance the large King-King copper-gold project in the Philippines.
"It's a bit ironic," said Mark Savage, chairman of both CGA and Ratel Gold in a phone interview. "We wanted to separate the Philippines assets from the African assets...and of course we spun it off, but then we ended up doing a deal back in the Philippines."
The Philippines deal, made in conjunction with CGA, has Ratel earning a 60% interest in the King-King project. Private, Washington State-based Russell Mining & Minerals (RMMI), which currently control the earn-in rights, agreed to transfer its interest to Ratel in exchange for 80 million shares to be released in tranches that will give RMMI roughly 32% of issued and outstanding shares in Ratel. RMMI will receive a further 75 million shares once a feasibility study is completed, expected in the first quarter of 2012.
Philippines company Nadecor, which currently holds the mineral rights, will end up with the remaining 40% interest.
Much like with the creation of Ratel, once a major opportunity presented itself, management decided to separate the smaller-scale, potentially riskier African plays from the larger Philippines project.
Ratel's African assets include a 51% earn-in right to Segilola, which hosts 3.6 million indicated tonnes grading 4.5 grams gold per tonne; a 51% interest in Mkushi, which hosts 18.5 million indicated tonnes grading 0.83% copper; and a pending 51% interest in the Obuasi joint venture in Ghana.
Meanwhile the King-King project, located in the southeast region of the island of Mindanao, hosts 791.5 million measured and indicated tonnes grading 0.28% copper and 0.37 gram gold for a gold equivalent of 20.7 million contained oz., and a further 125.5 million inferred tonnes grading 0.24% copper and 0.31 gram gold for a gold equivalent of 2.75 million oz. The project is listed as a top priority by the Philippine Mines and Geosciences Bureau and has a strip ratio of 0.8:1.
"It's a different market cap and different type of investor," said Savage.
As to having the deal go through CGA itself, already established in the Philippines, Savage said it was considered but excess dilution, among other reasons, had them decide against it.
The 60% earn-in agreement with Nadecor, first established by RMMI, requires the funding and preparation of a feasibility study, at an estimated cost of US$43.5 million, payments to Nadecor of US$7.5 million, and the funding of the first US$12.8 million of Nadecor's ultimate 40% contribution to development capital.
Along with the requirements to Nadecor, the King-King deal was conditional on Ratel Gold completing a $25 million financing, provisioned in the release as an 80-million share offering at 30. Through the financing CGA, as part of its ongoing strategic partnership with Ratel, agreed to increase its stake from roughly 20% to 27%.
Ratel's share price, however, increased from 46¢ on October 15, the last trading day before the King-King deal was announced, to close at $1.52 on December 7, the day before the actual financing was announced. Savage attributes the upward price trend to enthusiasm for the King-King project.
Accordingly, the financing was increased to $30 million, and then later the same day to $40 million, with the sale of 32.8 million subscription receipts at $1.22 each. A receipt is good for one share, to be released from escrow after the spin-out of Ratel is completed.
The spin-out is expected to be complete by January 6, at which point Andy Russell of the RMMI Group will become CEO of St. Augustine, with its stake in the King-King project. While Russell has extensive experience managing large-scale copper-gold projects, the CGA team, with its operating mine in the country, will be able to help advise him.
"We have tremendous experience in the Philippines," said Savage. "We built a large plant on-budget and on-time and understand how to operate in the country."
Management demonstrated its ability to operate in the Philippines when, on October 22, CGA and Ratel announced they had, in conjunction with Nadecor, reached a settlement agreement with Philippines-based Benguet, a previous partner in the King-King project. Benguet has agreed to release its interest in the project, as well as 4,000 hectares of claims surrounding it, to Ratel. In return, Nadecor and Ratel, in an even split, are to pay roughly US$25 million to Benguet over seven years.
Benguet and Nadecor first signed a deal on the project as far back as 1981, but King-King remains undeveloped. The companies were embroiled in a legal dispute for the first decade, then low metal prices in the later 1990s hindered development, and in recent years Benguet has been struggling with debt.
Once the series of transactions wrap up in January, the new joint venture plans to pick up where RMMI left off and finally develop King-King. Environmental assessments, metallurgical work and drill plans are already underway as the group works towards the 2012 goal for a feasibility study.
The Ratel Group, meanwhile, will continue to advance the African assets, including the development of what could be one of Nigeria's first substantial gold mines.
Savage said the company is still very excited about the Nigerian project, with good grades of near-surface gold, but noted they still have a long way to go.
As to working in Nigeria, Savage said "we don't have any problem with it....the management team was the first into Mongolia with the Boroo mine, first into Tanzania. We've had a first advantage in a few countries."
Following the announcement of the $40 million financing, Ratel's share price went up 39¢ or 25.7% to $1.91 on a total of 1.5 million shares traded.
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