The former management team of CGA Mining, which redeveloped and opened the Masbate gold mine in the Philippines and then merged last year with B2 Gold (TSX: BTO; NYSE-MKT: BTG) in a deal worth US$1.1 billion, is hoping to repeat some of that magic at RTG Mining (TSX: RTG).
Based in Perth, the junior is merging with Sierra Mining (ASX: SRM), an exploration company listed on the Australian Securities Exchange that holds several advanced copper–gold projects in the Philippines.
The merger — expected to be completed in early June — will give RTG control of Sierra’s projects in two of the Philippines’ main gold provinces: the Paracale gold district in eastern Luzon, where gold production dates from the twelfth century, and the eastern Mindanao mineral belt in the southern Philippines, where the Pacific Cordillera volcanic arc contains many known porphyry copper and epithermal gold deposits.
Sierra’s flagship Mabilo project — a magnetite skarn containing copper–gold–silver mineralization — is in the Paracale gold district. Recent drill results returned intercepts including 40.5 metres grading 1.81 grams gold per tonne, 1.38% copper, 25 grams silver per tonne and 41.26% iron; and 4.2 metres at 2.13 grams gold, 1.96% copper, 16.5 grams silver and 50.55% iron.
Other highlights are 166 metres grading 1.29 grams gold, 1.27% copper, 8.3 grams silver and 32.46% iron; and 55 metres of 1.01 grams gold, 2.40% copper, 14.3 grams silver and 19.99% iron.
Sierra is exploring three main zones at Mabilo: North, South and East. So far the drilling has focused on defining the southeastern strike and southwestern downdip extent of the large South zone, which is larger than the North and East zones. It has also tested the strike extension of mineralization to the north and south of the North zone. A fourth magnetic anomaly at Venida South lies along strike from a former small-scale mining operation, but hasn’t been drill tested yet.
There are three drill rigs on the property, and Sierra has completed 55 drill holes.
In addition to its majority interest in Mabilo, Sierra has an interest in the Nalesbitan project in Eastern Luzon and two permit applications in eastern Mindanao for the Bunawan project, which provides a land holding of more than 88 sq. km next to Medusa Mining’s (LSE: MML; US-OTC: MDSMF) underground high-grade gold mine.
RTG chairman Michael Carrick knows the Philippines well after developing Masbate, the largest gold mine in the country. He has also presided over the development of three gold mines in Western Australia (Marymia, Bullabulling and Chalice), one in Ghana (Obotan) and the first major gold mines in Tanzania (Golden Pride) and Mongolia (Boroo).
Under the scheme of arrangement between RTG Mining and Sierra Mining, Sierra shareholders will receive three shares of RTG Mining for each Sierra share they own and one RTG option or share purchase warrant for each three Sierra shares held.
B2Gold, which is the largest shareholder in both companies, (18.2% in RTG and 7.4% of Sierra), supports the merger. Clive Johnson, B2Gold’s president and CEO, noted in prepared remarks at the time the proposed merger was made public earlier this year, said the business case for the combination is “compelling,” adding that “the RTG management team have an excellent track record in the development of new gold projects — particularly in the Philippines.”
Justine Magee, RTG’s CEO, notes that the Sierra acquisition fits well with the company’s strategy of targeting projects with low technical and project risk where management can add value through rapid development and optimization. She also points out that RTG’s strong financial position, technical expertise and track record of building mines helps the company rapidly advance the Mabilo project and maximize value for RTG and Sierra shareholders.
“Following the completion of the deal between B2Gold and CGA Mining in January last year, we spent the last twelve months looking for the right new opportunity, reviewing over 70 projects,” Magee explains in an email to The Northern Miner. “In light of the tough equity market conditions our focus was to find high-grade opportunities that had low capital needs and strong operating cash flow. The Mabilo project, which is our principal focus in Sierra’s portfolio, was a perfect fit for us. The consistent high-grade drill results speak for themselves with average gold-equivalent grades of between 6 and 8 grams gold per tonne.”
Magee notes that the project has other key advantages, including a joint-venture partner that has a direct-shipping operation in the Philippines and a strong network into China for off-take. This joint-venture partner, Galeo Mining, is a local contracting company that also worked on CGA Mining’s Masbate project and is owned by Filipino businessman Eric Gutierrez.
Gutierrez started off with the $700-million San Roque dam project as a sub-contractor for the American Raytheon Engineers & Contractors Group and saved enough money to buy the Tubay nickel property in Surigao. He drilled the property to resource status and started shipping 1.2% nickel around the time that the metal price hit $55,000 a tonne. The Tubay project was repeatedly challenged by politicians and businessmen and provided the training ground for Gutierrez’ knowledge and skill to get a good-grade project up and running in the Philippines, Magee says.
“He will be a strong partner in the project and will be of assistance both on the contracting and drilling side, but also in managing local community relations and the permitting process.”
Magee adds that about the first one million tonnes in the oxide layer at Mabilo can be extracted and sold under a direct-shipping operation and there is a fully developed port 40 km by sealed road from the project site, which would allow early cash flow from the project with nominal capital needs. “The potential is for the proceeds of the DSO to fund a significant portion of any capital needed to develop and build the sulphide plant. Accordingly, the Mabilo project could be fully developed, with limited dilution to shareholders.”
In addition, the joint-venture partner’s earn-in obligations include 14,000 metres of drilling, of which it has completed 5,000 metres. The partner is also obliged to undertake the first 1.5 million tonnes of pre-strip, which is likely to amount to 60–70% of the pre-strip, she says.
Moreover, Mabilo is situated in the Paracale region, which is supportive of mining, and in an area which is both flat and sparsely populated, with no artisanal miners given the volcanic cover over the orebody. “At Masbate we managed approximately 2,500 artisanal miners and eight surrounding barangays that included approximately 24,000 people,” she says. “At Mabilo, there are only about 500 to 600 people in one barangay and no artisanal miners, which makes managing local community issues . . . much easier than what we achieved at Masbate.”
Finally, RTG is familiar with the personnel at the Department of Environment and Natural Resources (DENR) because Mabilo is located in Region 5, along with Masbate. “They already fully understand the credentials that we bring to a mining operation,” Magee says. “Our experience in the Philippines, having developed and operated the 200,000 oz. Masbate mine, which is referred to by the DENR as the flagship project for the country and an example they encourage others to replicate, has been positive and created goodwill for our management team in the country.”
Once the merger is completed, B2Gold will hold 11.6% of the company and the Hains family 5.6%. According to Forbes, David Hains has a $US2.1-billion net worth, which is good enough for twelfth in Australia. Magee says the Hains family has been a shareholder for more than a decade.
Before announcing the Sierra acquisition in February, RTG had divested a number of its assets in Africa. It sold its interest in the Mkushi copper project in Zambia for US$13.1 million, including US$6.6 million in shares of Elephant Copper Ltd., and a convertible note due in January 2015 for US$6.5 million.
It has also entered into a sale agreement for its interest in the Segilola gold project in Nigeria to its joint-venture partner for US$14 million and a 3% net smelter return royalty, under which RTG can receive up to a maximum of US$8 million.
RTG was listed on the Toronto Stock Exchange in April 2013. Since then its shares have traded in a range of 5¢ to 14¢ a share. At press time RTG was trading at 13¢ a share.
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