Crocodile Gold Snapped Up By Franc-Or

When former TSX-listed GBS Gold International went belly up in Australia late last year, yet another casualty of the global economic downturn, privately owned Crocodile Gold bought all its assets.

In one stroke, the acquisitions gave the Toronto-based startup a huge footprint in Australia’s Northern Territory, with two mills, two underground mines, two open-pit mines and two undeveloped gold deposits among other assets.

All of the properties are within 200 km east and southeast of the port city of Darwin on the Timor Sea.

The Tom’s Gully project — an underground gold mine and mill — is about 90 km east of Darwin, while the Brocks Creek underground gold mine and two open-pit gold mines (Chinese South and North Point) along with several gold deposits are all within about 120-200 km southeast of the city. Other assets include the Burnside, Union Reefs, Pine Creek, Maud Creek and Moline projects.

The assets all weigh in with an indicated resource of 27.9 million tonnes grading 2.8 grams gold per tonne for contained gold of 2.49 million oz. and an inferred resource of 22.75 million tonnes grading 2.3 grams gold for 1.67 million oz.

The combination of Crocodile’s strong mining assets in a politically low-risk jurisdiction proved too alluring for Franc-Or Resources (FOR-T, FRORF-O).

Earlier this month, the TSX-listed company, which owns a zinc-lead-silver- gold exploration property in the Andean Highlands of central Peru and a gold-silver property in north-central Nevada, signed a letter of intent to acquire all of Crocodile Gold’s outstanding shares.

“Australia is very mining-friendly and it’s an opportunity for us to grow,” Scott Moore, Franc-Or’s president and chief executive said in an interview. “We classify Australia as a First-World jurisdiction. There’s also a very strong mining culture and access to people and materials.”

Most of the assets are close to infrastructure — specifically the Stewart Highway and Darwin — a portal to Asia.

Both Franc-Or and Crocodile Gold also believe there is strong exploration potential.

“We think there’s more upside,” says Michael Hoffman, Crocodile’s current president and chief executive. “We’re going to start a $9-million exploration program this year on all of them.”

Ultimately, Crocodile Gold and now Franc-Or are beneficiaries of GBS Gold’s rapid growth before its collapse.

“They were in the midst of a pretty big expansion program,” Hoffman explains. “They were acquiring tenements and making acquisitions and they just ran out of money.”

Nevertheless, there is work to be done and bringing costs down by relocating part of the mill at Union Reefs will be one of the first things on their agenda. The mill is at least 100 km from the nearest mining asset and it is expensive to truck the ore over such distances.

“They were trucking ore into that mill from a number of operations,” Franc-Or’s Moore explains. “It’s a significant distance and contributes significantly to cash costs.” Moore estimates that Franc-Or will move at least one circuit of the two-circuit ball mill closer to its mining operations in 2011.

Under the proposed arrangement, a wholly owned subsidiary of Franc-Or will amalgamate Crocodile Gold. All of the shareholders in Crocodile Gold will receive one share of Franc-Or on a post consolidation basis for each share of Crocodile Gold they currently hold. The new company, which will hold all of Crocodile Gold’s assets, will be a wholly owned subsidiary of Franc-Or.

Prior to the transaction, Franc-Or will consolidate its issued and outstanding shares on the basis of one new Franc-Or share for each 6.3 existing Franc-Or shares.

Following the transaction, Crocodile shareholders will own about 90% of Franc-Or on a non-diluted basis, while current Franc-Or shareholders will own about 10%.

Moore believes the deal makes sense and that Franc-Or will be getting good value for its money.

“At one point, GBS Gold was a company with about $350 million in market capitalization,” Moore says. “We’re valuing the transaction with Crocodile Gold at about $70 million . . . there was only one other bidder for the (GBS Gold) assets and Crocodile was able to acquire them for a reasonable price of about A$51 million (US$42.5 million).”