Blue Note to buy 100% of Croinor gold project

With a positive prefeasibility study for the Croinor gold project in hand, Blue Note Mining (BNT-V) has decided to buy out its 50-50 joint venture partner First Gold Exploration (EFG-V).

Under the deal, Blue Note will pay a total of $2.75 million in cash and issue 17.5 million Blue Note shares to First Gold. All of the cash will be paid to First Gold by the end of the year while the shares will be used periodically over a period of 35 months. The transaction will leave First Gold with a 13.67% interest in Blue Note.

Blue Note will also acquire First Gold’s 71% ownership in the Matchi-Manitou property. Both properties are located in Quebec’s Abitibi region, near Val d’Or.

“Owning an undivided interest will not only provide for a more focused and cost-effective operation but will facilitate the financing required for construction,” said Blue Note chairman and CEO in a statement.

And although First Gold will be missing out on being a part of a potential 500-tonne-per-day operation that produces up to 45,000 oz. gold per year, president and CEO Eric Leboeuf says First Gold will be using the cash on rare earths.

“The agreement will allow first Gold to concentrate its financial resources and efforts on its flagship rare earth Pivert/Rose project which is currently being drilled,” Leboeuf said in a statement, also noting that the company will benefit from its equity interest in Blue Note.

According to the prefeasibility study, the Croinor deposit has proven and probable reserves of 690,000 tonnes grading 8.35 grams gold per tonne for a total of 185,000 oz. gold.

The Croinor project has an undiscounted 97% internal rate of return and a net present value of $47.4 million. With a 7% discount rate, the NPV is $35.9 million and using the three-year trailing average (undiscounted) the NPV is $24.9 million and the IRR is 52%.
The mine would bring in revenue of $182 million and generate a net cash flow (pretax but after royalties) of $47.4 million.

Capital costs would amount to $26 million, including $7.4 million in sustaining capital.
Average cash operating costs were estimated at US$572 per oz. while total cost per oz. gold came in at US$715.

Blue Note shares were down half a cent today, at 9¢ apiece on a trading volume of 121,000 shares. The company has a 52-week trading range between 7¢ and 33¢, 110.1 million shares outstanding and a market cap of $9.1 million.

First Gold shares were down 3¢ to 28.5¢ apiece on a trading volume of 355,000 shares. The company has a 52-week trading range between 7¢ and $1.03, 74.6 million shares outstanding and a market cap of $21.6 million.