The boards of Eldorado Gold (ELD-T, EGO-N, EAU-A) and Brazauro Resources (BZO-T) have approved a friendly all-share takeover offer tabled by the Vancouver-based gold producer.
The bid values Brazauro at an implied $122.4 million. Eldorado will provide 0.0675 of a share for each Brazauro share, valuing Brazauro at $1.33 apiece. This offer represents a 92% premium over the closing price of Brazauro’s shares on May 11, the last day of trading before the offer was made public.
As part of the deal, Eldorado will scoop up Brazauro’s flagship Tocantinzinho or TZ gold project in Brazil’s gold-rich Tapajos province, along with two nearby exploration projects — Agua Branca and Piranhas — in the heart of the remote gold district.
Eldorado will also provide $10 million to fund a new exploration company — New Brazauro — to hold Brazauro’s remaining assets. Each Brazauro shareholder, other than Eldorado, will receive one share of New Brazauro plus 0.0675 of an Eldorado share for each Brazauro share.
This transaction enables Brazauro’s investors to become shareholders of a more liquid Eldorado while continuing to be a part of a new exploration company with quality projects, Brazauro’s chairman and CEO Mark Jones III said in a press release. Jones added that he was pleased to place the future of the late-stage TZ project in Eldorado’s hands.
Eldorado has been the operator at TZ since September 2008, after it signed an option agreement with Brazauro in July of that year. The agreement allows Eldorado to earn up to 75% of the project and a share position in the company for $123 million in expenditures and cash payments.
To date, Eldorado has spent $12.5 million on the 445-sq.-km property to define and update the resource. Due to Eldorado’s and Brazauro’s joint drilling, TZ has seen 159 holes and roughly 45,000 metres. Of those, 139 holes have outlined a gold zone measuring around 700 metres long by 150 to 200 metres wide and more than 300 metres deep. The mineralization at TZ remains open at depth.
As of December of 2009, TZ hosts 51.4 million measured and indicated tonnes grading 1.14 grams gold per tonne for 1.9 million oz. gold. A recent scoping study showed that it would cost $239 million to build an open-pit mine at TZ and 6.25 years to pay back. Miners could potentially produce 145,000 oz. gold at a cash cast of $490 per oz. over a 13-year mine life. The project has a net present value of $129 million at a 5% discount rate and a gold price of $900 per oz., with an internal rate of return of 12%.
Along with TZ, Eldorado will add the early-stage Agua Branca, which is 35 km south of TZ, and the 345-sq.-km Piranhas property, which is 20 km southwest of Brazauro’s prized asset, to its portfolio.
Eldorado currently owns the Kisladag gold mine in Turkey and the Tanjianshan gold mine in China. The company is also busy developing gold projects in Turkey and Greece and an iron ore project in Brazil.
The transaction is expected to close by July 15 and is subject to routine court, regulatory and shareholders’ approvals. Brazauro’s management holds 8.9% of Brazauro’s outstanding shares, options and warrants and has agreed to vote in favour of the deal at its upcoming security holders’ meeting.
Eldorado currently owns 17.2% of Brazauro on a fully diluted basis. The break fee is $4.8 million and Eldorado has the right to match any competing offers.
News of the offer sent Brazauro shares up 60¢ to $1.29 on 22 million shares traded, while Eldorado shares climbed 23¢ to $18.27 on 7.1 million shares traded.