Gold-Ore and Astur Gold to merge

Vancouver-based juniors Gold-Ore Resources (GOZ-T) and Astur Gold (AST-V) are joining forces to form a single, European-focused  company with a producing gold mine and another gold project with upside.

In what’s been billed as a merger of equals, the deal has Gold-Ore issuing Astur shareholders 2.35 Gold-Ore shares per Astur share, adding 81.1 million Gold-Ore shares to the 85.4 million Gold-Ore shares already in existence for an eventual ownership ratio of 51.3% Gold-Ore and 48.7% Astur. The newly merged company will then complete a 1-for-3 share rollback and change its name to Astur Gold.

To the new company Gold-Ore brings the Bjorkdal gold mine in Sweden, which produced 40,338 oz. gold in the 2011 fiscal year. The mine has been in production for more than two decades, having already produced over 1 million oz. gold, while Gold-Ore first came on to the project in 2006. The combined open-pit and underground operation had a average head grade of 1.16 grams gold per tonne in 2011 and a daily throughput of 3,329 tonnes.

Since acquiring full control of Bjorkdal at the end of 2007, Gold-Ore has been working to improve production and reduce costs at the low-grade mine, including by switching from contract workers to a company-owned mining fleet. Cash costs have, however, have stayed persistently high or gone higher as the company has struggled to secure a full fleet of mining equipment. For the first nine months of 2011 cash costs per oz. averaged US$925, including US$882 per oz. in the third quarter.

Astur, meanwhile, adds the Salave gold project in Spain that has a significant gold resource as well as additional permitting risk. The project has an open-pit resource of 18 million tonnes grading 2.92 grams gold for 1.68 million oz. gold, plus an inferred resource of 2.6 million tonnes grading 1.94 grams gold for 160,000 oz. gold.

The open-pit project was blocked in 2005 when the regional government of Asturias banned open-pit mining within 500 metres of the coast, which envelops the deposit.

At the time of the ban, the project was controlled by Lundin Mining (LUN-T), but Astur Gold has controlled the deposit as its main asset since early 2010. Astur has since been working to change policy and public opinion on open-pit mining, and while it has noted several political statements and public polls that indicate support for the project, there are few obvious signs that an open-pit mine will happen.

In the meantime, Astur has been advancing an underground option on Salave, which hosts an underground inferred resource of 1.17 million inferred tonnes grading 4.7 grams gold for 180,000 oz. gold. In a February preliminary economic assessment (PEA) Astur considered several scenarios for Salave, including two underground options. Incorporating the higher-grade portion of the open-pit scenario as well as the underground resource, the PEA set out a 10-year mine life producing 133,300 oz. per year, which translated to a pre-tax net present value at a 5% discount of US$391 million and an internal rate of return of 46% based on a pressure oxidation scenario.

In a first step of moving the project through permitting, the company received its first drill permits for the project on Dec. 12. The permit covers a seven-hole geotechnical drilling program.

The combined company will have three directors from Astur and four from Gold-Ore. The deal has a $2.5-million break fee. Shareholders are to vote on the deal in February 2012, with the deal requiring two-thirds Astur support and 50% plus one Gold-Ore support. Gold-Ore, with its producing mine, brings $20.5 million in cash to the combined company while Astur brings $1.5 million.

On the news Gold-Ore’s share price was down 4¢ at 79¢ while Astur’s was up 8¢ at $1.80.