Magnacon comparison forms basis for Belmoral valuation

When Strathcona Minerals was attempting recently to prepare a valuation on Belmoral Mines’ (TSE) Val d’Or, Que., mill and two money losing gold mines, it took what seemed to be the only course open to it. Rather than discounting the value of the assets based on future cash flow from production and an assumption regarding metal price trends, Strathcona elected to take a different route.

According to a proxy circular distributed to Belmoral shareholders, Strathcona arrived at a $3-6.5 million price range, by assessing their value as a going concern to potential buyers.

The strategy was adopted because Belmoral’s Ferderber and Dumont mines, at a cash cost of US$375 per oz., were not making any money and future buyers would need to finance more development work to make them profitable. For the first six months when Belmoral reported a net loss of $17.1 million, Dumont and Ferderber had produced 25,800 oz. of the yellow metal.

Since then, Aur Resources (TSE) has agreed to purchase a 50% interest in the two Val d’Or mines, plus Belmoral’s 1,300-ton-per-day mill and 21,000 acres of mineral properties.

If Belmoral shareholders approve the transaction at a special meeting in Toronto Oct. 18, Aur will lend the company $3.5 million and forgive debts owed to it by Belmoral worth $4.5 million. As well, both companies have agreed to spend $2 million to develop the mines.

Belmoral has been forced to sell the assets, along with other mining interests including 40.4% of Yorbeau Resources (TSE), in an effort to pay off debts totalling $8.5 million to Aur and Central Capital Corp. of Toronto. “This is the only course open to us,” President Gord Strasser told The Northern Miner.

Aur sees the acquisition as a chance to expand its land position in Val d’Or and gain milling facilities for its Kierens gold mine and Norlartic project which are also located in the region.

Strathcona supported its assessment by comparing possible pricing scenarios with the amount offered by Hemlo Gold Mines (TSE) for 75% of Muscocho Explorations’ (TSE) Magnacon mill near Wawa, Ont. While it costs $24 million to construct the 600-ton-per-day Muscocho mill facility, Hemlo offered to pay $9 million for the asset.

By comparison, a 50% undivided interest in Belmoral’s 10-year-old 1,300-ton-per-day plant is considered to be worth $3-6.5 million, says Strathcona.

In arriving at the valuation, Strathcona said it also took into consideration the book value of the assets, (calculated at $6.8 million) and the availability of other idle milling plants in Canada.

Proceeds of the sale will enable Belmoral to pay the $550,000 it owes to Central Capital while maintaining its exposure to any future exploration successes on the properties.

In partnership with Societe Miniere Louvem (TSE), Aur has already discovered a major copper- zinc-rich massive sulphide deposit on its Louvicourt Twp. claims, east of Val d’Or. With options on other properties in the camp, it expects to find more.