Linear Gold to wed Central Sun Mining

With the well of money run dry, the mining industry is likely to witness a few marriages of convenience in the months ahead, like the proposed coupling of Linear Gold (LRR-T) and Central Sun Mining (CSM-T, SMC-x). 

Central Sun Mining could hardly reject Linear Gold’s advances. In mid-October, a US$22.5 million financing deal fell through, forcing the Toronto-based company to suspend plans to install a new milling operation at its Orosi gold mine in Nicaragua.

If the companies make it to the altar, Central Sun will get its hands on  about US$20 million in cash and cash equivalents, which will be used to re-start production at Orosi. 

At the same time, Linear, which is exploring gold and base metal deposits through joint ventures with Kinross Gold (K-T, KGC-n) in Mexico and Everton Resources (EVR-V) in the Dominican Republic, will inherit a portfolio of producing gold mines in Nicaragua.

These include Central Sun’s Limon mine, an underground mine and 1,000-tonne per day mill about 100 km north of the Nicaraguan capital Managua, which is currently producing about 45,000 oz. gold a year, and the Orosi open-pit mine, 110 km east of Managua.

Once the new mill is installed at Orosi, the mine will produce about 85,000 oz. gold annually and lift Linear Gold’s total gold production to about 130,000 ounces a year. Linear Gold will also get access to Central Sun’s prospective Mestiza-La India property, 70 km by road east of the Limon mine, a potential high grade development opportunity.

Central Sun receives more than just cash from the deal, however. Linear Gold has some promising assets of its own, including the Ixhautan gold project in Mexico and Ampliacion Pueblo Viejo, Loma El Mate and Loma Hueca gold properties in the Dominican Republic.

Kinross Gold has been exploring and evaluating Linear Gold’s Ixhautan gold project under an option agreement to acquire up to a 70% interest, in exchange for future cash payments to Linear Gold of up to US$115 million.

Under a letter of agreement made public on Dec. 29, Central Sun Mining shareholders will receive 0.4 Linear Gold shares for each Central Sun Mining share held. For Central Sun, the exchange ratio of 0.4 Linear Gold shares for each Central Sun share values it at about C$18.4 million, or about C$0.292 per Central Sun Mining share.

That valuation represents a 75% premium based on the 20-day volume weighted average price of Central Sun and Linear Gold shares on the Toronto Stock Exchange from Dec. 23, the trading day prior to the announcement, and 42% based on the respective closing prices on Dec. 23.

Linear Gold will have about 53.2 million shares issued and outstanding, with former Central Sun shareholders holding roughly 48% of the shares of the combined company.

So far Linear Gold has lock-up agreements with Central Sun Mining’s officers, directors and shareholders, who hold about 10.5% of the company’s shares.

At mid-day in Toronto, Central Sun Mining shares were trading up 58.97%, or 11.5¢ per share, at 31¢ apiece. Linear Gold shares were up 9.86%, or 7¢ apiece, to 78¢ per share.

Over the last year Central Sun Mining shares have traded in a 7.5¢-$2.50 per share range, while Linear Gold has traded in a band of 65¢-$3.10 per share.