Fronteer bids for NewWest Gold

Fronteer Development Group (FRG-T, FRG-X) is bidding for Denver, Colo.-based gold explorer NewWest Gold (nwg-t, nwwlf-o) in an all-paper proposal supported by NewWest’s major shareholder, NWG Investments.

Fronteer is offering 0.26 of a Fronteer share for one share of NewWest, which values NewWest at $3.20 per share based on Fronteer’s price before the offer. NewWest shareholders would hold 18% of the merged company.

NWG Investments, which owns 86% of NewWest, has locked up its shareholding to the bid, although a superior-transaction clause allows NWG out for a break fee of $5.6 million. Fronteer has the option to match any competing offer.

NewWest has given Fronteer 30 days to perform due-diligence investigations and both NewWest and NWG are barred from soliciting other proposals during that period. Fronteer has until Aug. 17 to make a formal takeover proposal to NewWest’s minority shareholders.

NewWest’s assets consist of 18 gold projects in Nevada and one, Zaca, in California. The company went public in August 2006 in a $20.5-million offering, having worked the projects privately since the 1980s. Fronteer would be buying NewWest’s technical team, as well as the properties.

The Northumberland project, in the northern part of Nye Cty. and the subject of a joint venture with Newmont Mining (NEM-N, NMC-T), has a measured and indicated resource of 28 million tonnes averaging 2.3 grams gold per tonne, plus an inferred resource of 4 million tonnes grading 3.1 grams. An inferred silver resource, partly contiguous with the inferred gold resource, amounts to 32 million tonnes at 5 grams silver. Northumberland is a replacement-type gold deposit in carbonate rocks of the Roberts Mountain and Hanson Creek formations, the hosts of the Carlin gold deposits.

Newmont, which is earning a 60% interest by spending US$25 million by the end of 2010, spent US$3 million on the property in 2006 to drill targets along the known Northumberland gold horizon. NewWest can elect to have Newmont finance its 40% working interest, and in any event retains a 3% net smelter return.

In May, NewWest published a resource estimate for its Sandman gold project, about 30 km east of Winnemucca. Sandman has 7.3 million tonnes grading 1.2 grams gold per tonne, plus 1.3 million tonnes of inferred resources at 0.9 gram.

Zaca, in Alpine Cty., Calif., about 110 km south of Reno, has a 24.3-million-tonne measured and indicated resource grading 0.55 gram gold per tonne, plus a small inferred resource. Both Zaca and Sandman are epithermal gold deposits hosted in volcanic and related intrusive rocks.