VANCOUVER — Australian-based gold producer Troy Resources (TRY-T, TRY-A) could send its mine-building team into the jungles of Guyana, if it’s successful with a US$200-million bid for explorer Azimuth Resources (AZH-T, AZH-A) and its multi-million-ounce West Omai gold project, 180 km southwest of Georgetown.
The acquisition fits Troy’s South American production portfolio, which comprises the Casposo gold mine, 150 km west from the city of San Juan in Argentina, and the Andorinhas gold mine in Para State, north-central Brazil. According to CEO Paul Benson, Troy had been looking at opportunities in casethat operations at Andorinhas conclude in 2014, and identified Azimuth as its "first prize" roughly six months ago.
"First and foremost, [the deal] delivers us a high-grade, open-pittable resource at an advanced stage of definition that has yet to have development plans locked into place," Benson explained during a conference call. "That allows us to be confident we can bring it into production quickly and cost effectively with the same development team we have used at our other mines in South America."
Under terms of the all-stock deal Troy would pay a 62% premium on Azimuth’s three-month, volume-weighted average on the Australian Securities Exchange, which equates to US46¢ per share. Azimuth shareholders would receive one Troy share for every 5.695 shares held, resulting in Azimuth shareholders garnering a 45% equity interest in Troy.
Azimuth’s dual listing would hopefully translate in greater liquidity for Troy shares on the Toronto Stock Exchange, where the company trades at a relatively low 3,800 shares per day. Troy has around 88 million shares outstanding, and the Azimuth deal would tack on another 76 million shares — which values Azimuth at US$200 million, based on Troy’s $2.69-per-share closing price at the time of the bid.
"The relative valuation between producers and explorers has moved more in the favour of producers. So we were able to pay a premium to the market, but we still see significant value in this instance," Benson says. "A number of factors have contributed to the dropping investor interest in the explorer-developer end of the market, but I think the most important factor has been the growing concern about how a single-project company can cost-effectively raise capital required to build something like West Omai, without existing shareholders suffering substantial dilution."
The main prize is a relatively high-grade, near-surface inferred resource that Azimuth has delineated at its Smarts and Hicks deposits, which totals 17 million tonnes grading 3.06 grams gold per tonne for 1.65 million contained oz. at a 1-gram-gold cut-off. Benson said Troy has been eyeing a smaller operation that would average between 700,000 and 1 million tonnes of throughput annually.
Troy could start with the Smarts deposit, which boasts 8.1 million inferred tonnes of 4.15 grams gold, and then expand once West Omai kicks up cash flow.
"Our thinking is that we’ll start with a smaller project than Azimuth might have originally been aiming for," Benson said. Azimuth had previously modelled a US$165-million development with gravity and carbon-in-leach circuits that would average 1.5 million tonnes in throughput annually.
"That would enable us to mine the higher-grade ore while understanding the potential to move towards underground mining at a later date as we expand throughput. We feel that represents the fastest path to production, and also offers the optimum risk return, considering the logistic and regional challenges."
In the meantime Troy has agreed to forward Azimuth a bridge loan totalling US$10.4 million by way of a convertible note facility. The loan will allow Azimuth to continue its delineation drilling and potential scoping studies without having to risk a capital raise on equity markets that could result in further dilution.
Azimuth potentially offers Troy long-term growth in an emerging gold camp via a 1,100 sq. km land package in Southern Guyana’s Mazaruni mining district, with the Guiana Shield already accounting for millions of ounces in historic gold production.
Troy reported a net profit of US$14 million during last year’s second half, along with US$43.3 million in cash and equivalents.
The company has dropped 18% since news of the Azimuth acquisition broke on March 28, losing 48¢ per share en route to a $2.20 press-time close in Toronto.
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