Roxgold (TSXV: ROG; US-OTC: ROGFF) Roxgold plans to add cash to its balance sheet by acquiring a private company called XDM Royalty Corp. in an all-share deal.
The Toronto-based junior will issue about 14 million shares — XDM shareholders will receive 0.175 Roxgold share for each XDM share — and in exchange, Roxgold will get its hands on XDM’s $7.5-million treasury.
“XDM has no other material assets, the deal is essentially a private placement at an implied value of 55¢ per share — a 10% premium to Roxgold’s Dec. 10 closing price,” David Sadowski of Raymond James explains in a research note. XDM is also looking to monetize a 1% net smelter return royalty it holds on Gold Standard Ventures’ (TSXV: GSV; NYSE-MKT: GSV) Railroad gold project in northern Nevada. Once sold, the proceeds will go to Roxgold.
Raymond James was retained by Roxgold to evaluate the transaction and rendered a positive fairness opinion from a financial point of view, Roxgold outlined in a press release announcing the deal. (XDM retained Haywood Securities to evaluate the transaction, and it also rendered a positive fairness opinion.)
The XDM transaction follows two equity raises by Roxgold in 2013 — the first completed in February for $10 million, and the second in August for $10.25 million.
“We’ve accessed the traditional equity markets twice this year, we did two $10 million raisings, but one has to be mindful in markets like these that sometimes you have to be creative in raising money,” Roxgold president and CEO John Dorward says in a telephone interview.
“We just viewed this opportunity as available and it made sense that we could do it as what is effectively a private placement at a premium to our share price,” he says. “So that helps Roxgold shareholders, and I think it’s a good outcome for XDM shareholders, too.”
Dorward noted that the two companies share the same chairman — Oliver Lennox-King — and that there are a number of common shareholders.
Roxgold holds lock-up and share voting support agreements from XDM’s shareholders totalling 43.2% of XDM’s outstanding common shares.
The cash that comes with the acquisition will give the company “additional flexibility to move forward with site prep work at Yaramoko, such as preliminary water storage,” Sadowski of Raymond James notes, “as well as to continue the ongoing 5,000-metre drill program at the highly prospective Bagassi South zone.”
Earlier this month, Roxgold announced a 5,000-metre drilling program at the Bagassi South target on its 100%-owned Yaramoko permit in the Houndé greenstone belt in Burkina Faso.
Bagassi South is Roxgold’s priority and it is targeting a set of three north–west and one north–south trending structures within which high-grade gold intercepts have been reported. Roxgold plans to test the intersections between these structures, as they represent areas of potential thickening where wider intercepts may be achieved.
At the end of October, the company reported intercepts from Bagassi South that include 10.97 grams gold per tonne over 2.6 metres within a wider intercept of 2.53 grams gold per tonne over 13.9 metres, and 14.4 grams gold over 0.5 metre.
Work on a feasibility study got underway in August and the company expects it should be completed in the second quarter of 2014.
In September, the company wrapped up a preliminary economic assessment of Yaramoko’s 55 zone, which had an after-tax internal rate of return of 47.7%, with a 1.4 year payback on initial capital and an after-tax net present value at a 5% discount rate of $192 million, based on a US$1,300 per oz. gold price.
The study estimated pre-production capital of $93.8 million, which consists of US$37.7 million for the underground mine, $24.2 million for the processing plant, $14.4 million for infrastructure, $7.1 million for owner’s costs, and $10.4 million to cover contingencies.
Average annual production during the first five years is estimated to be 98,300 oz. During the first five years of production, average total costs, including royalties, are forecast at US$455 per oz., with all-in sustaining costs of US$681 per oz. during the same period. Over the full 10-year mine life, average total cash costs including royalties would run to US$530 per oz.
Sadowski has a six- to 12-month target price on Roxgold of $1 per share.
At press time, the junior was trading at 45¢ per share within a 52-week range of 36¢ to 80¢ per share.
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