Over the last 18 months Mark O’Dea, president and CEO 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 15 km.
The Liguidi soil anomaly corresponds with numerous artisanal gold mining sites and mapped structural zones, while Riverside’s flagship Karma project contains an indicated resource inside five Whittle pit shells of 56.5 million tonnes grading 1.07 grams gold per tonne for 1.94 million oz. gold, and inferred resources of 15.4 million tonnes averaging 1 gram gold for 492,000 oz. 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 as as president and CEO 12 months ago, was looking for ways to advance his company’s projects to production.
The result was a decision to blend Riverstone’s project portfolio, exploration, engineering and development expertise 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 CEO of Sandstorm Gold (SSL-V, SAND-X) and Sandstorm Metals & Energy, and a former chief financial officer at Silver Wheaton (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 positive about 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. Riverstone Resources shares closed 18% higher on the news at 66¢ apiece, with a total of 2.9 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 crosshairs for a long time, saying that “it’s one of the largest geochem soil anomalies in that part of Burkina, 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 rotary air-blast drilling and a few reverse-circulation 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 . . . having that project and the upside it represents free and clear really added to the attractiveness of this deal.”
O’Dea notes that Burkina Faso has not had the 80 years of exploration history that other similar belts in the world have had, and that it remains a relatively new district from an exploration point of view — although the country has defined over 30 million oz. gold in modest exploration efforts over the last 20 years.
“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 telephone interview, Melrose described working in Burkina Faso as “refreshing” compared to his stints in Kyrgyzstan and China. He also notes that talks with Burkina officials in government and the mining ministry have shown 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 June 2013. Riverstone completed a resource estimate in January and a preliminary economic assessment (PEA) of the project in August, before updating the resource estimate in early October and moving more resources into the indicated category.
Under the now-outdated PEA, and after paying the government’s 10% free-carried interest, the project demonstrated an after-tax net present value of US$192 million, a 37% internal rate of return, a two-year payback and a 10-year mine life. The open-pit, heap-leach operation was forecast to produce 70,000 to 90,000 oz. 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 hopes to increase gold production to 100,000 oz. a year.