B2Gold, Auryx to hook up

 B2Gold (BTO-T) and Auryx (AYX-T) have agreed to tie the knot through a plan of arrangement by year-end. 

Clive Johnson, B2Gold’s president and CEO, said in an Oct. 11 conference call that the transaction is a win for both parties.

Auryx shareholders would receive 0.23 of a B2Gold share and 0.1¢ in cash for each share held. Based on B2Gold’s closing price of $3.30 on Oct. 11, the transaction implies a share valuation of 76¢ apiece for Auryx, or a 65% premium to Auryx’s closing price on Oct. 7. The deal values Auryx at $138 million. 

B2Gold will get its hands on Auryx’s main asset – a 92% interest in the Otjikoto gold project in Namibia – along with two other exploration targets in the African country. A local partner holds
8% of Otjikoto. 

“This is a chance to get involved in what we think is a very solid project that is soon heading into the feasibility and development stage,” Johnson told analysts and investors during the call. “We like it a lot because of its significant potential for production that can add a lot to our production in the next three years or so.” 

Auryx’s CEO Tim Searcy said in the joint release that “this business combination delivers an immediate and attractive premium to our shareholders while effectively capitalizing the development of Otjikoto. Searcy went on to praise B2Gold as a “proven mine builder and operator,” with the financial muscle and technical acumen to get Otjikoto off the ground.

The Vancouver-based B2Gold has two producing gold mines in Nicaragua. La Libertad and Limon are anticipated to deliver a combined 135,000 oz. gold to 145,000 oz. gold this year. 

In its production pipeline, B2Gold has the Gramalote gold property in Colombia. It owns 49% of the project, with AngloGold Ashanti (AU-N) holding the majority. While the project is undergoing a drilling program and prefeasibility work, an updated resource estimate should be out by year-end.

Gramalote has a National Instrument 43-101 compliant inferred resource of 74.4 million tonnes grading 1 gram gold per tonne, for 2.39 million oz. The company also has exploration assets in Costa Rica and Uruguay. 

With the Auryx transaction, B2Gold will be venturing into Africa and adding the more advanced Otjikoto project to its lineup. 

Based on a September preliminary economic assessment Otjikoto could churn out 109,000 oz. gold a year over a 10-year mine life, starting as early as 2015.

Under a contract mining scenario the study pegged capital costs at US$130 million and cash costs at US$691 per oz. 

Analyst Steven Green of TD Securities wrote in an Oct. 12 note that “the company has arguably taken on additional political risk for a relatively small high-cost project far from its existing geographical focus.” He adds the deal is accretive, and believes B2Gold will be able to advance the project. Green maintains a “buy” recommendation on the stock and a $4.75 target price. 

Otjikoto hosts 25 million indicated tonnes of 1.44 grams gold for 1.2 million oz. gold, plus 16 million inferred tonnes of 1.31 grams gold for 660,000 oz. 

Tom Garagan, B2Gold’s senior vice-president of exploration, says the company first looked at Otjikoto about three years ago when gold was at US$650 per oz., and even liked it then. With the price of gold more than double that, the project has become even more attractive. Garagan adds that the project’s favourable logistics and geology lured the company to Namibia, which has a strong mining culture and a relatively stable government. The company has been talking with Auryx’s CEO for over a year and has visited the site several times. 

“The project has excellent logistics, you can drive to the project from the capital,” Garagan says, adding that the project is near a paved road, railhead, power and water. 

He notes that the project is well-drilled and the orebody is flat-dipping, with continuous mineralization over a couple of kilometres. The project is 100 metres to 150 metres wide and averages 25 metres in thickness. 

B2Gold plans to visit Namibia again to review exploration plans for the upcoming year. 

Auryx kicked off a 12-month, 45,000-metre infill and step-out drill program in July to upgrade the resource and work towards
a feasibility study. The study is expected in the latter half of 2013.

Analysts estimate the company’s combined value at $1.3 billion. Though B2Gold would issue 41.8 million fully diluted shares to Auryx, representing a 12.2% dilution, the Otjikoto project could increase B2Gold’s production by 42% in 2015. 

In an Oct. 11 presentation, B2Gold said that based on consensus analyst estimates, its two mines and Otjikoto could produce more than 300,000 oz. gold in 2015.

If Gramalote comes online as expected by 2016, it could bump up B2Gold’s production to 450,000 oz. gold. 

The combined entity would have $100 million in cash and equivalents, enough to advance both Otjikoto and Gramalote. 

Analyst Chris Thompson of Haywood Securities says in an interview that the company is balancing near-term cash flow with long-term growth opportunities. He views the transaction as “fair” and maintains a target price of $4.40 for B2Gold, but
has upgraded the stock to “sector outperform” from sector perform. 

On the merger news, Auryx surged 54% to 71¢ on 15.7 million shares traded, while B2Gold was off 5% to $3.30, with 2.7 million shares traded.