Barrick buys 9% of Carpathian Gold for $20M

Carpathian Gold (CPN-T) has received a big credibility boost from Barrick Gold (ABX-T, ABX-N), after the miner agreed to purchase $20-million worth of the junior’s shares for an approximate 9% interest.   

The Romania- and Brazil-focused gold explorer will sell Barrick 38.4 million shares at 52¢ apiece in a private placement, as well as give Barrick a right to participate in any future equity offerings and a right of first refusal – at the asset level only – on
any future sale of the company’s Romanian assets.

Though Carpathian has been focusing recently on advancing its smaller Riacho dos Machados gold project in Brazil, Barrick appears to have its eyes on Carpathian’s Rovina Valley Project (RVP), a gold-copper porphyry system which lies within the
Metalliferi mountains of west-central Romania. Carpathian says it will use the money at RVP to boost its 2011 drill program to 50,000 metres from 35,000 metres, and fast track an ongoing prefeasibility study.

The extra drilling will focus on expanding the Ciresata deposit, one of three nearby deposits from which drilling recently returned 668 metres grading 0.86 gram gold per tonne and 0.17% copper. Surrounding targets and other satellite areas of the project will also be tested “as prescribed by Barrick,” according to Carpathian. Exploration direction will come in part from a newly created advisory technical committee comprising two Barrick representatives and three Carpathian executives, in addition to two Barrick employees whom Barrick may elect to work at the project. 

RVP lies in prospective geological territory. It is situated in the historic Golden Quadrilateral mining district 25 km southwest of Gabriel Resources‘ (gbu-t) large Rosia Montana gold-silver project, which boasts over 10 million oz. gold in proven and probable reserves, and close to 15 million oz. gold measured and
indicated.

As a mining jurisdiction, however, Romania has yet to prove it has legs. Rosia Montana has faced countless political and environmental delays over the past decade, including a three-year suspension of its environmental permitting process by the Romanian government, and, by some reports, over 100 lawsuits from various NGOs and other groups calling themselves stakeholders. 

Dino Titaro, Carpathian’s president and a director of Yamana Gold (YRI-T, AUY-N), said in a prepared statement he views the transaction with Barrick “as a significant endorsement of the Rovina Valley project, our exploration team and Romania as a country with world-class mining potential.” Carpathian has had little trouble so far with stakeholders at RVP, and plans to start the very detailed permitting process sometime in the third quarter of 2011. Unlike Rosia Montana, which contains a network of mining tunnels dating from the Roman Empire, among other things, Carpathian says RVP’s proposed mine site footprint does not include any known protected heritage sites or archaeological occurrences, and has been designed to minimize impact in the nearby communities of Rovina and Bucuresci. 

As per a late 2008 resource estimate, RVP has measured and indicated resources totalling 193.1 million tonnes grading 0.49 gram gold and 0.18% copper, for 3.07 million oz. contained gold and 759 million lbs. copper. The company is looking to update the estimate early next year after completing the current drill program, in time for the maiden prefeasibility study.

A preliminary economic assessment completed for the project in early 2010 used conventional open-pit mining methods for the Colnic and Rovina deposits, with the Ciresata deposit later mined by bulk-underground methods, in an operation that would produce around 200,000 oz. gold and 50 million lbs. copper per year, for 19 years. 

Back in Brazil at its Riacho dos Machados gold project, Carpathian has stepped up permitting and construction efforts. Construction is expected to begin before October, with initial production in early 2013.

Carpathian is targeting a production of 100,000 oz. gold per year, with an internal rate of return estimated at 27.6%. The
project has proven and probable reserves of 20.9 million tonnes grading 1.24 grams gold for 830,000 oz. gold.

Shares of Carpathian rose nearly 10% in intraday trading on July 18, before closing up 1¢ to 59¢ on 2.72 million shares, following the private placement announcement. Shares had already popped 28% to 54¢ in prior weeks, thanks to the strong drilling results at Ciresata.

The company has 389 million shares outstanding – not including the recently proposed financing – and $33 million in working capital, with a 52-week range of 28¢-77¢.