Over the last eighteen months Mark O’Dea, president and chief executive officer of Blue Gold Mining (BGX-V), has kicked the tires of over 100 projects and companies in his quest to find something that would appeal to shareholders.
He cast his net widely — from Colombia, Chile, Peru, and Argentina to Mexico, the U.S., northern Canada, and the Balkans and on to parts of West Africa. He finally found what he was looking for in Riverstone Resources (RVS-V) with its advanced-stage Karma gold project in Burkina Faso and its intriguing Liguidi prospect — a gold in soil anomaly in the West African nation that stretches for roughly fifteen kilometres.
The Liguidi soil in anomaly corresponds with numerous artisanal gold sites and mapped structural zones, while Riverside’s flagship Karma project contains an indicated resource inside five Whittle pit shells of 56.48 million tonnes grading 1.07 grams gold per tonne for 1.94 million ounces of gold and inferred resources of 15.4 million tonnes averaging 1 gram gold for 492,000 ounces of gold.
While O’Dea, who has a track record of creating strong, well-financed companies built on high-quality projects was looking for opportunities to optimize shareholder value for Blue Gold, Dwayne Melrose, who joined Riverstone Resources as president and chief executive twelve months ago, was looking for ways to advance his company’s projects to production.
The result was a decision to blend Riverstone’s exploration, engineering and development expertise and project portfolio with Blue Gold’s cash position of $18 million, strong investment community following and technical and exploration experience.
“This is an exceptional opportunity to put two strong groups together that is so much bigger than the sum of its parts,” O’Dea told analysts and investors on a conference call. “Over the years we’ve identified four essential elements in building successful mining companies and those elements are: assets, people, capital and a strong shareholder base and our merged company ticks all four of these boxes.”
O’Dea, who will join the combined company’s new board as executive chairman, is best known for growing Fronteer Gold from a $2 million start-up into a high profile development-focused gold company that Newmont Mining (NMC-T, NEM-N) snapped up for $2.3 billion in 2011.
“Mark O’Dea has built technical and capital market teams that have advanced multiple projects…and built a track record of success that will greatly enhance our projects moving forward,” Melrose told analysts and investors on the conference call.
Other notable heavyweights at Blue Gold include director Nolan Watson, founder and current president and chief executive of Sandstorm Gold (SSL-V, SAND-X) and Sandstorm Metals & Energy (SND-V) and a former chief financial officer at Silver Wheaton Corp. (SLW-T, SLW-N).
The new board will consist of three Blue Gold nominees and five Riverstone nominees and certain officers at Blue Gold will become officers at Riverstone. The composition of the new board should be announced within the next few weeks, Melrose confirmed on the conference call.
The market seemed to like the all-share deal, which sees each Blue Gold share exchanged for 0.801 of a Riverstone share, giving Blue Gold shareholders 30% of the pro forma outstanding shares of Riverstone on a fully diluted basis. In mid-afternoon trading in Toronto shares of Riverstone Resources were up 16% to 65¢ apiece with a total of 2.6 million shares changing hands. Shares of Blue Gold remained unchanged at 58¢ per share.
O’Dea notes that Riverstone’s Liguidi project, 120 km southeast of the capital Ouagadougou, has been in Blue Gold’s cross-hairs for a long time. “It’s one of the largest geochem soil anomalies in that part of Burkina anyway, and what I like about the combined entity is that it not only ticks boxes of near-term production visibility on a project we can do ourselves, but it also has a huge amount of exploration sizzle.”
In a telephone interview following the conference call O’Dea admitted that he had been in discussions with Riverstone about the Liguidi component of their portfolio for well over a year. “It’s had a couple of campaigns of trenching and RAB drilling and a few RC holes and the results have demonstrated that there is widespread mineralization through this entire trend,” he says. “It had been tied up in litigation for a couple of years and that just got resolved in the past month or so … and so having that project and the upside it represents free and clear really added to the attractiveness of this deal.”
In terms of Burkina Faso itself, O’Dea noted that it has not had the eighty years of exploration history that other similar belts in the world have had and that it is still a relatively new district from an exploration point of view. In spite of that, the country has managed to define over 30 million ounces of gold in modest exploration efforts in just the last twenty years alone.
“It’s a gold-enriched environment that has not had a sustained exploration effort,” he continues, adding that he feels comfortable in the area in terms of mining jurisdictions within which to operate.
“We feel political risk is relatively low,” he says. “We wouldn’t be doing this deal if we didn’t feel we could operate in Burkina and if we didn’t feel as if we had secure tenure.”
In a subsequent telephone interview Melrose described working in Burkina Faso as “refreshing” by comparison to his stints in Kyrgyzstan and China. He also noted that in his talks with Burkina officials in government and the mining ministry that “they see mining as their number one industry.”
Melrose says he hopes to complete a full feasibility study on the Karma project, about 100 km northwest of Ouagadougou, by the end of June 2013. Riverstone completed a resource estimate in January and a preliminary economic assessment of the project in August, before updating the resource estimate earlier this month and moving more resources into the indicated category.
Under the now outdated PEA, and after payment of the government’s 10% free-carried interest, the project demonstrated an after-tax net present value of US$192 million, an internal rate of return of 37%, a pay-back of two years, and a ten-year mine life. The open-pit heap leach operation was forecast to produce 70,000 to 90,000 ounces of gold a year at cash costs of US$525 per oz. gold. Initial start-up capital was estimated at US$125 million with potential to reduce that with contract mining to about US$80 million.
The company does not plan to extend the mine life based on its recently updated resource estimate, but rather wants to increase gold production to about 100,000 ounces a year.