O3 Mining (TSXV: OIII; US-OTC: OIIIF) is selling its Golden Bear assets including the Garrison gold project to Moneta Porcupine Mines (TSX: ME; US-OTC: MPUCF) and taking a 30% stake in the company in a deal worth about $48 million.
O3 Mining’s Garrison project is adjacent to Moneta’s Golden Highway project and the transaction will see the consolidation of over 70,000 hectares of ground within a 10 km strike length between the companies’ assets in the Kirkland Lake district of Ontario’s Timmins camp. Once the deal closes, Moneta will have about 8.8 million ounces of gold on its books and one of the largest undeveloped gold projects in North America.
“This has been a very well-thought out process and we have been working together for the last 18 months going back and forth and reviewing all the data and looking at all the synergies we’d have,” Jose Vizquerra, O3 Mining’s president and CEO, said on a conference call. “We have to keep in mind that Moneta is one of the oldest companies listed on the TSX—in 1910—which brings a good opportunity for consolidating the ground in, I don’t know how many years.”
Gary O’Connor, Moneta’s CEO, said the acquisition of O3 Mining’s Golden Bear assets, about 100 km east of Timmins, will transform the company into one of the largest gold development companies in North America. Across its projects, the company will hold 3.97 million ounces of gold in the indicated category and 4.34 million inferred gold ounces, with both high-grade bulk tonnage underground deposits and near surface open-pit resources.
“We see this as a major combination of two very high-class assets with great growth potential,” O’Connor told analysts and investors on the conference call. “Both projects have PEAs … and we see the ability to have a large scale open pit as well as large underground bulk mining…Both open pit ounces and underground ounces are highly economic, so we can combine these with significant upside.”
O’Connor noted that the two open-pit areas are only 5 km apart and Moneta will hold most of the ground in the area between the two assets and “will be tying up very prospective ground.” He added that that having one set of infrastructure rather than two will immediately lower capital costs and further improve the economics.
“The addition of O3 Mining’s Garrison project will add 85% to our indicated ounces, and the production profile will significantly increase beyond what we’ve seen in the two PEAs,” O’Connor continued. “We’re looking at larger open pits … We see at least two underground operations blending that with lower grade open pit material. There’s lots of optionality where we use a starter pit at Garrison or access higher grade underground resources earlier … [and] the open pits all line up in one structural zone; the pits can all be accessed by a single mill … so we’re very keen to continue and grow and connect the remaining areas. This project will continue to grow.”
The executive also said the deal should result in a significant re-rating of Moneta, which he argues is undervalued compared to its peer group. “Moneta Porcupine has been valued at about $16 per oz.,” which is significantly below the $77 per oz. typical of its peer group, O’Connor said. “From a net asset value alone, our share price should be significantly higher … at about $1.60.” (Over the last year Moneta’s shares have been trading in a range of 5.5¢ and 39¢ and closed at 35¢ following news of the deal.)
O3 Mining updated the resource and completed a PEA on Garrison in December, outlining a 12 year mine life from an open pit operation producing 121,000 oz. gold in years one through eight or 94,000 oz. annually over the life of mine. The early stage study estimated a strip ratio of 2.7:1, and cash costs of US$721 per oz. based on a gold price of US$1,450 per ounce, and outlined an after-tax net present value at a 5% discount rate of $321 million, and an internal rate of return of 33%.
Garrison has measured and indicated resources of 66.3 million tonnes grading 0.86 gram gold per tonne for 1.82 million oz. contained gold and 45.3 million inferred tonnes averaging 0.73 gram gold for 1.06 million ounces.
Moneta’s Golden Highway project hosts six deposits with a combination of open pit and underground resources. Golden Highway’s total open pit resources stand at 50.5 million indicated tonnes grading 0.93 gram gold for 1.51 million oz. gold and 34 million inferred tonnes averaging 1.10 grams gold for 1.21 million ounces.
Underground resources at Golden Highway total 4.9 million indicated tonnes grading 4.05 grams gold for 632,000 gold oz., and 15.7 million inferred tonnes grading 4.21 grams gold for 2.13 million ounces.
A PEA on Golden Highway’s South West underground deposit in September 2020 envisioned an underground bulk mining operation over a mine life of 11 years, producing 76,000 oz. gold a year at cash costs of US$590 per ounce using a gold price of US$1,500 per ounce. The study calculated an after-tax net present value at a 5% discount rate of $236 million, an internal rate of return of 30% and after-tax free cash flow of $371 million.
Moneta has yet to complete a PEA on Golden Highway’s open pit resources or new underground discoveries.
Under the transaction, O3 Mining will receive about 150 million common shares of Moneta.
Directors of Moneta holding about 16.49% of the company’s outstanding shares have voted in support of the deal.
Concurrently, Moneta has arranged a $20 million bought deal financing to fund additional drilling. The offering consists of 30.44 million flow through common shares at a price of 46¢ each.