Toronto-based junior
The combined company would be called Defiance Mining and headquartered in Toronto, with its stock trading on the Toronto and Australian Stock Exchanges and the Alternative Investment Market of the London Stock Exchange.
Under the proposed business combination, St Barbara shareholders would receive 0.226 of a Defiance share for each of their shares, and one St Barbara option would be good for 0.039 of a share in the new company. Geomaque shareholders would get 0.125 of a Defiance share for each of their Geomaque shares.
Midas Gold, a private, U.K.-based company controlled by Strata Mining (St Barbara’s biggest shareholder), would be added to the mix, with shareholders receiving 0.44 of a Defiance share for each Midas share held. Strata is chaired by Stephen Miller, St Barbara’s president and chief executive officer.
Geomaque and St Barbara expect to complete a deal in February, to be followed by a shareholder vote in April.
In the end, St Barbara shareholders would own about 64.4% of Defiance, Midas shareholders would have 19.8%, and Geomaque shareholders would hold the remaining 15.8%. The post-merger company would have some 130 million shares issued and outstanding.
Stephen Miller will act as president and CEO of Defiance; Geomaque’s president and CEO, John Hick, will sit as non-executive chairman; Alan Rule, currently St Barbara’s chief financial officer, will keep his title at Defiance; and Midas’s chairman, Kevin Dundo, will join the board.
St Barbara’s Australian portfolio includes its Meekatharra complex in the Murchison gold field of Western Australia, which produced 103,246 oz. gold at a net cash cost of A$682 per oz. in 2002, down from 147,063 oz. the previous year. The drop is attributed to the milling of harder ore as the open pits sank deeper and underground material was introduced to the mill. Production is expected to rebound in 2003 as more higher-grade underground ore is introduced to the mix.
Meanwhile, at Meekatharra, 16 of 33 reverse-circulation holes returned between 2.5 and 14 grams gold over widths of 2-6 metres (true widths are estimated at 60-70% of intercept lengths). The holes tested a 400-by-400-metre area of intermediate and felsic volcanics. The zone extends to depths of more than 100 metres.
Meekatharra’s proven and probable reserves stand at 3 million tonnes averaging 2.17 grams gold per tonne, equivalent to 207,211 contained ounces, based on a gold price of A$530 per oz. Total resources come to 12 million tonnes running 2.1 grams gold. Another 2.4 million tonnes of inferred resources grade 3 grams gold.
Paddy’s Flat
St Barbara is also acquiring the Paddy’s Flat property, part of Meekatharra, from
Production at the 88.3%-owned Paulsens high-grade deposit in the Ashburton district is to begin in early 2004. In the meantime, St Barbara needs to finish up a bankable feasibility study and secure bank financing and board approval for the project. Over five years, Paulsens is expected to average 90,000 oz. gold at cash cost of US$260 per oz. Preproduction capital costs are pegged at US$18 million. Paulsens’ mining inventory is about 3.3 million tonnes averaging 4.2 grams gold. The deposit remains open at depth.
Geomaque’s sole producing mine, the Vueltas del Rio mine in Honduras, spat out 27,077 oz. gold during 2002 (commercial production was attained mid-year). The pit shell contains about 2 million tonnes grading 2.47 grams gold. The open-pit heap-leach operation is expected to pour 42,000 oz. in 2003 and 35,000 oz. in 2004 at an average life-of-mine cash cost of US$214 per oz.
As part of the merger deal, Resource Capital Fund II will convert a minimum fee of US$1.6 million owed to it under an existing credit agreement with Geomaque into 3.2 million Defiance shares. RCF will also drop some of the agreement’s royalties plus another with Geomaque Honduras.
RCF has also extended by three months, to the end of April, the facility’s first quarterly payment. In return, RCF’s Henry Tuten will take a seat on Defiance’s board as a non-executive director. Sococo de Costa Rica, a contract miner at Vueltas, has agreed to a similar deal.
In Canada, Geomaque has an option to acquire a half-interest in the Marathon palladium project, 10 km north of Marathon, Ont. To do so, Geomaque must spend a total of US$1.8 million by November 2004. A further 10% can be had for US$650,000 after the earn-in period.
Mexico
Geomaque also has sizable land positions in Mexico, where it retains property rights adjacent to its closed San Francisco mine.
For its part, Midas is in the midst of acquiring the Tasiast gold project in Mauritania from
A scoping study at Tasiast suggests annual production of around 120,000 ounces at an average life-of-mine cash cost of less than US$185 per oz. Initial capital costs are estimated at US$37 million. Another US$11 million of sustaining capital would also be required.
When the dust settles, Defiance would boast three mines producing more than 350,000 oz. annually by the end of 2005. Total cash costs are projected to fall from about US$255 per oz. in 2003 to less than US$195 apiece by the end of 2005.
The share exchange ratios contemplated under the deal are based on per-share prices of C10 for Geomaque, A21 for St Barbara, and A41 for Midas. At the end of trading on Jan. 9, the day the proposed merger was announced, Geomaque shares ended 2.5 lower at 11.5 in Toronto; St Barbara finished up A2 at A13.5 on the Australian Stock Exchange.
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