Rusoro ropes Gold Fields properties

Vancouver — Having inked a deal to purchase all of Gold Fields’ (GFI-N, GFI-J) mineral projects in Venezuela, including the Choco 10 gold mine, Rusoro Mining (RML-V, RMLFF-O) is jumping to producer status.

Rusoro is paying the South African major US$150 million in cash plus US$30 million in a convertible vendor take-back loan for the portfolio. It is also issuing Gold Fields 140 million shares, making it the company’s largest shareholder at 38%.

To fund the deal, Rusoro has an underwriting agreement to sell 87.5 million subscription receipts at $2.40 apiece, raising $210 million. When the acquisition is completed, subscription receipts will be exchanged for units consisting of a common share and a warrant. Warrants will be exercisable at $5 apiece for five years.

Besides propelling Rusoro to producer status, the deal boosts the junior’s footprint in eastern Venezuela’s Bolivar state. The company has four projects — Increible 6, San Rafael-El Placer, Valle Hondo and Km 88 — close to Hecla Mining’s (HL-N) Isidora and La Camorra underground gold mines, Gold Reserve’s (GRZ-T, GRZ-X) Brisas development project, and Crystallex International’s (KRY-T, KRY-X) sizable Las Cristinas gold deposit.

Having begun production in 2006, Gold Fields’ 95%-owned Choco 10 mine churned out about 55,000 oz. gold at total cash costs of US$523 per oz. in its latest fiscal year. Operations have been beset by difficulties, including labour issues, a ball mill drive train failure that interrupted production for about a month, and water shortages that have hampered the plant’s ability to run at full capacity. The company has submitted a proposal to extract water from the Yuruari River that is awaiting approval.

Proven and probable open-pit reserves at Choco 10 stand at 15.4 million tonnes grading 3.4 grams gold per tonne for about 1.7 million contained ounces. Measured and indicated resources come in at 56.1 million tonnes of 2.5 grams gold (about 4.45 million contained ounces) along with 40.8 million inferred tonnes of 2.2 grams gold for 2.9 million contained ounces.

Rusoro’s management is confident it can use its Venezuelan operating experience to solve many of the problems Gold Fields has experienced at Choco 10, and ramp up production.

The junior’s Increible 6 development project hosts an indicated resource of 23.5 million tonnes averaging 2.1 grams gold (about 1.6 million contained ounces). A further 17.5 million tonnes at 2 grams gold was also reviewed — adding 1.1 million contained ounces gold. Rusoro has modelled an open-pit operation at Increible 6 that could now possibly share certain infrastructure and feed ore to Choco’s processing circuit, about 4 km away.

“This transaction will dramatically expand and accelerate Rusoro’s production growth profile and offers an excellent opportunity to fast-track production at the Increible 6 project, while moving us significantly closer to positioning ourselves as an intermediate gold producer,” said company president George Salamis in a statement.

Earlier this year, Rusoro consolidated its interest in its Venezuelan properties by merging with its project partner, Mena Resources. Assuming regulatory and shareholder approvals, Rusoro anticipates closing the deal by year-end.

Gold Fields has also agreed to sell its 60% stake in the Essakane project, in Burkina Faso, to partner Orezone Resources (OZN-T, OZN-X) for US$200 million.

As the world’s fourth-largest gold producer, Gold Fields is focusing on its South Deep mine complex in South Africa, where it expects to spend several hundred million dollars in infrastructure development and expansion over the next several years. South Deep holds 29 million oz. of gold reserves, plus some 67 million contained ounces in resources.