Geomaque and St Barbara rework Defiance deal

A revised plan will see Geomaque Resources (GEO-T) take a larger initial role in the creation of a new international gold mining company named Defiance Mining.

In January, Geomaque announced plans to merge with Australia-listed St Barbara Mines of Perth and create Defiance. The plan also included Midas Gold, a private, U.K.-based company controlled by Strata Mining (St Barbara’s biggest shareholder with a 39.2% stake).

In the end, Defiance would have been held 64.4% by St Barbara shareholders 19.8% by Midas shareholders and Geomaque would have been left with 15.8%.

Under the new deal, Geomaque has agreed to acquire all of Midas’ shares at a rate of 3.52 of its own shares for each Midas share and beget Defiance. With about 51.7 million shares outstanding, Defiance will be owned 50.1% by Geomaque shareholders and 49.9% by Midas shareholders.

After the new company attains a listing on the Toronto Stock Exchange, it will negotiate a business combination with St Barbara.

The new deal is subject to all the usual conditions; Geomaque plans to put the new plan to a shareholder vote in June.

In related news, Geomaque has advanced Midas another US$1.95 million under an existing secured loan agreement. Midas will use the funds to complete the acquisition of the Tasiast gold property in Mauritania, West Africa, from Newmont Mining (NEM-N) (T.N.M., Jan 20-26/03).

The advance comprises US$7000,000 form Geomaque’s working capital plus a US$1.25-million bridge loan (accruing interest at 5% annually) from Resource Capital Fund II. The loan is to be repaid from proceeds of the eventual sale of Midas’ Ocean Resources Capital Holdings shares. Ocean Resources is a U.K.-based resource investment fund.

Tasiast comes with a price tag of US$6.5 million. Newmont will retain a 2% net smelter royalty on gold production exceeding 600,000 oz.

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.

An ongoing program of reverse circulation and diamond drilling is aimed at boosting Tasiast’s indicated and inferred resources into the measured category. A bankable feasibility study is expected by year-end.

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.