Rea Gold, American Res. propose corporate merger

By mid-May of this year, Rea Gold (TSE) and American Resource (NASDAQ) expect to merge into a single entity that would have minable gold reserves of about 1.7 million oz.

Under the terms of a recent agreement-in-principle, American Resource (ARC) will merge with Rea Mining (Rea’s wholly owned American subsidiary).

ARC shareholders will receive 2.2 shares of Rea for each ARC share held. However, the transaction is still subject to completion of due diligence investigations by the two companies, as well as shareholder and regulatory approval.

If all goes as planned, the board of the surviving entity will be restructured, with equal representation from ARC and Rea, and include independent directors, to be announced at a later date.

Rea President James Hogan will become chairman of the merged company, while ARC President Ian Smith will become president.

The combined companies will have working capital (including investments in securities) of about US$40 million, and a market capitalization of US$160 million, based on current share prices.

Once the transaction is completed, former ARC shareholders will hold about 40% of Rea shares then-outstanding.

Rea operates the Mt. Hamilton open-pit, heap-leach gold mine near Ely, Nev. At last report, this project hosted minable reserves of 8.4 million tons grading 0.047 oz. gold per ton, or 395,000 contained ounces.

Another asset is the Bissett gold project in Manitoba, which hosts minable reserves of 3.1 million tons grading 0.258 oz. gold per ton (containing 812,000 oz.).

Rea Gold recently announced a production decision for Bissett, a former producer, and is involved in negotiations with potential lenders for the debt portion of the project financing. In the meantime, an 18-month development program is under way at the mine site.

ARC has focused much of its recent efforts on its gold concessions in Uruguay, which cover the major, prospective greenstone belts in that country.

In northern Uruguay, ARC is developing the San Gregorio gold deposit, which, at last report, hosted in-situ, minable reserves of 5.6 million tons grading 0.075 oz. gold per ton.

ARC expects to begin mine site construction shortly, and says discussions with lenders regarding the debt portion of the project financing are at an advanced stage.