Barrick extended the offer, which remains conditional on getting a controlling interest in Argentina Gold (AG), after the original deadline passed on Jan. 9 without enough shares arriving in the mail. Barrick, which has a 9.9% interest in the Vancouver junior, wants another 40.2% of the outstanding shares, based on AG’s fully diluted capitalization. The major has not said how many shares were tendered before the deadline.
Barrick is maneuvering to acquire AG’s chief asset: the Veladero gold-silver property in northwestern Argentina. Situated near the Chilean border, 390 km northwest of San Juan, the project is currently a 60-40 joint venture between the two companies, with AG acting as operator.
In a press release, the AG board thanked its shareholders for “recognizing the total inadequacy of Barrick’s opportunistic and coercive offer” and remained firm in its recommendation that its shareholders continue to reject Barrick’s offer.
The junior says Barrick downplayed the importance of Veladero by enhancing, in its takeover circular, the value of its Pascua project. It also believes that Barrick’s unsolicited offer was engineered to prevent AG shareholders from receiving fair value for their shares.
AG has been trying to persuade its shareholders to obtain a copy of an analysis prepared by CIBC Wood Gundy in mid-December 1998. In that report, Barry Cooper and Brett Whalen state that Barrick’s “control of Veladero may be critical in order to advance Pascua.”
Barrick’s wholly owned Pascua property is 6 km northwest of Veladero, on the Chilean side of the boundary. Pascua contained a proven and probable reserve of 194 million tons averaging 0.058 oz. gold per ton, or 11.2 million contained ounces, based on figures Barrick released at the end of 1997.
The Wood Gundy analysts say Barrick will not go ahead with a production decision at Pascua without seeing higher grades for the project as a whole. If Barrick does not put Pascua into production, it may be forced to take a writedown of part of the project’s carrying costs, now estimated at $900 million.
The report states that Barrick would be paying $50 per oz. of recoverable gold if it were to buy AG at the bid price of $4 per share.
This calculation assumes Veladero has a resource of 25 million tonnes grading 5 grams gold and 50 grams silver per tonne, with stripping ratios and per-tonne costs comparable to those reported for the Pascua project. Cooper and Whalen also have assumed an operating cost of US$70 per oz., capital costs of US$150 million, and a gold price of US$295 per oz.
The resource at one of the targets on Veladero, Amable, stands at 31.8 million tonnes grading 2.02 grams gold and 43.1 grams silver, equivalent to a contained resource of 2.1 million oz. gold and 43.9 million oz. silver. Included in the estimate is a high-grade resource of 900,000 tonnes grading 17.36 grams gold and 71.7 grams silver, equivalent to 502,468 contained ounces gold and 2.1 million contained ounces silver.
AG estimates that Amable’s preliminary resource, when combined with a previously announced resource projection for the property’s Filo Federico target, totals 4.46 million oz. gold and 118.9 million oz. silver. Filo Federico is estimated to have indicated and inferred resources of 82.8 million tonnes grading 0.75 gram gold and 26.1 grams silver per tonne. A smaller zone, the NW Target, has indicated and inferred resources of 8 million tonnes grading 1.48 grams gold and 21 grams silver per tonne.
The Wood Gundy analysts believe that if Barrick uses a US$100-per-oz. profit margin for its acquisition strategy, the major could afford to pay up to $5.75 per share of AG, or US$75 per recoverable ounce, presuming that the expected cost figures and stripping ratios are borne out.
Drilling is ongoing at Veladero, with hole 102 currently in progress at the Amable target. The hole was collared 50 metres east of previously reported hole 76 (193 metres grading 1.49 grams gold and 55.09 grams silver per tonne). Assay results from holes 97 through 100 are expected shortly.
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