ATW and Kinbauri to merge

Vancouver – ATW Gold (ATW-V) and Kinbauri Gold (KNB-V) are merging to create a new mid-tier gold company that could be producing more than 250,000 oz. annually within the next two years.

The two companies signed a binding letter agreement to merge stipulating each Kinbauri share be exchanged for 1.35 ATW shares. The deal implies a purchase price of 85¢ per share or almost $50 million total for Kinbauri, based on July 10th closing prices.

The deal represents a considerable premium to the takeover offer Orvana Minerals (ORV-T, ORVMF-O) recently extended to Kinbauri. Orvana offered 55¢ per share for the company but Kinbauri’s board urged shareholders to reject the offer, saying it significantly undervalued the company.

The Orvana offer was set to expire on July 13 but has since been extended to July 24.

ATW just reached commercial production at its Burnakura gold mine in Western Australia. The first gold pour happened in mid-March and in May output reached 5,000 oz. gold. The project is expected to produce 36,000 oz. gold this year. The attainment of commercial production catalyzed the planned expansion at Burnakura; ATW plans to increase production to 50,000 oz. annually.

During the commissioning phase at Burnakura ATW inked a US$10-million gold loan and marketing agreement with Red Kite Explorer Fund, an international metals fund. ATW will receive the US$10 million in three tranches and will repay the monies via 36 monthly deliveries of 475 oz. gold from Burnakura. Red Kite also has the option, for 24 months, to purchase an additional 475 oz. of gold per month at an exercise price of US$1,000 per oz. The agreement also gives Red Kite the right to purchase any excess Burnakura production at the spot price of gold.

And ATW’s Gullewa gold project, which is also in the Yalgoo mineral fields of Western Australia, is currently at the scoping-study stage. A 10,000-metre drill program is currently underway at Gullewa aimed at confirming the widths and grades within the main Deflector deposit as well as testing potential extensions to the north and south. The first set of drill results from the program show good progress on both fronts.

Confirmation drilling at Deflector returned such mineralized intercepts as 7 metres grading 1.54 grams gold, 4.8% copper and 21.8 grams silver per tonne; 17 metres averaging 1.58 grams gold, 2.5% copper, and 16.4 grams silver; and 7 metres of 15.68 grams gold, 3.2% copper, and 22 grams silver.

The expansion program at Gullewa is based on gravity and induced polarization data that show some 900 metres of untested strike length extending to the south. Results from only two step-out holes are available but one hole collared 600 metres south and 300 metres west of the deposit intersected significant mineralization: 28 metres averaging 1.54 grams gold, 0.47% copper, and 1.77 grams silver, from 66 metres downhole. The mineralization in the hole was similar to that at Deflector, where gold, copper, and silver are carried in steeply dipping, northeast-trending quartz veins with pyrite, chalcopyrite, and pyrrhotite.

Deflector is currently home to 1.7 million measured and indicated tonnes grading 4.18 grams gold, 6.87 grams silver, and 1.03% copper and 1.6 million inferred tonnes grading 6.5 grams gold, 3.41 grams silver, and 0.48% copper. The property includes an 800-tonne-per-day carbon-in-leach plant, a licensed tailings facility, and associated buildings.

Kinbauri brings to the new company its El Valle-Carles project near Asturias, Spain, which comprises two past-producing mines home to 1.7 million indicated tonnes grading 5.38 grams and 0.79% copper plus 2.9 million inferred tonnes averaging 6.68 grams gold and 0.55% copper. Kinbauri plans to restart operations; capital costs are estimated at $140 million to develop a project producing 100,000 oz. gold and 10 million lbs. copper per year for almost 10 years.

Unfortunately Kinbauri also brings outstanding legal disputes. Earlier this year Kinbauri signed a deal to sell a 45% stake in El Valle-Carles to Glen Eagle Resources (GER-V, GERFF-O) for $32 million. The deal went sour when Glen Eagle’s backer, private company Peak Holdings, revealed that its original source of funding – a consortium of European banks – had fallen through.

Glen Eagle started looking for new funding but Kinbauri announced the deal was over. That prompted Glen Eagle to sue for damages over unilateral termination of the agreement, resulting in breach of contract. Kinbauri fired back, saying it would consider seeking damages itself. The case is currently before the courts.

News of the merger was enough to shake the lawsuit blues and please Kinbauri shareholders, who lifted the company’s share price 11¢ to 66¢. Kinbauri has a 52-weeek trading range of 16¢ to 82¢ and has 58 million share outstanding.

ATW shares lost slightly on the merger news, falling 5¢ to close at 58¢. ATW has a 52-week trading range of 25¢ to 95¢ and has 70 million shares outstanding.

The new ATW would have 150 million shares outstanding. The merger requires approval from the shareholders of both companies.