Beaty bets US$20M on three-way merger to form Equinox Gold

VANCOUVER — Mining magnate Ross Beaty is leading a merger between gold juniors Trek Mining (TSXV: TREK), NewCastle Gold (TSX: NCA) and Anfield Gold (TSXV: ANF; US-OTC: ANCKF).

Beaty will serve as chairman of the resulting company to be named Equinox Gold, which will mark the first time he has joined a board of directors of a mining company for nearly a decade.

(The new company’s name harkens back to Beaty’s first mining venture in 1985 when he founded Equinox Resources Ltd., which was sold nine years later to Hecla Mining.)

The transaction involves Trek acquiring the other companies at an exchange ratio of 0.873 for each NewCastle share, and 0.407 for each Anfield share.

Beaty will acquire an 11% equity stake in Equinox for a US$20-million investment. Trek and NewCastle shareholders will each own 44% in the combined company, which will have 423 million shares outstanding, with the transaction expected to close in November.

Ross Beaty

“This opportunity really appealed to me for a number of reasons,” Beaty said during a conference call. “The Trek team will form the core management group and they’ve impressed me, and we’ve assembled a strong board of directors. We have two big assets that have the capacity to become large mines with bright futures. The assets have near-term, low-cost gold production and generate high returns. That’s how you create real shareholder wealth.”

Trek is working to restart the Aurizona gold mine in Brazil. The company outlined a US$131-million redevelopment plan in July, which could lead to a first gold pour by late 2018.

The project was shut down two years ago amid struggles with material crushing and processing.

Trek is modifying its permits to increase throughput from 5,500 tonnes per day to 8,000 tonnes per day, and CEO Christian Milau said he expects to receive government approvals in the near-term. Milau will continue as Equinox’s CEO and executive director.

The Aurizona feasibility study foresees an open-pit gold mine producing 136,000 oz. gold annually, with an initial 6.5-year mine life, at all-in sustaining costs of US$754 per oz. gold.

The property’s proven and probable reserves total 20 million tonnes at 1.52 grams gold per tonne for 971,000 contained ounces.

Trek Mining’s past-producing Aurizona gold project in northeastern Brazil’s Maranhao state. Credit: Trek Mining.

Trek controls 2,250 sq. km in Maranhao state in northeastern Brazil, which includes a regional joint venture with AngloGold Ashanti (NYSE: AU; LON: AGD) across 2,000 sq. km of what Trek calls “under-explored greenstone belts hosting orogenic gold systems.”

“The Aurizona deposit is wide open at depth and along strike,” Beaty said. “There are multiple other structures that are untested, and the potential to double or triple the mine life is very high … you also have the joint venture, and I’m told this is AngloGold’s highest-priority property worldwide.”

Meanwhile, NewCastle is advancing the past-producing Castle Mountain gold property, 120 km south of Las Vegas in California’s San Bernardino County. The site hosted a heap-leach operation between 1991 and 2001 that generated 1.24 million oz. gold at a head grade of 1.47 grams gold per tonne.

The company merged with Richard Warke and Frank Giustra’s Catalyst Copper in early 2016.

NewCastle updated Castle Mountain’s resource in September, and intended to release a prefeasibility study by year-end. The project has grandfathered permits that allow for the mining of 8.2 million tonnes per year — or 150,000 oz. gold annually — through 2025.

Castle Mountain hosts 192 million tonnes grading 0.64 gram gold per tonne for 4 million contained oz. gold in the measured and indicated category, with inferred resources of 102 million tonnes grading 0.48 gram gold for 1.6 million contained oz. gold. The resource estimate assumes a 0.2 gram gold cut-off grade.

NewCastle drilled over 44,000 metres at the project through the end of March and started a 10,000-metre follow-up program in September.

NewCastle Gold’s Castle Mountain gold project in California’s San Bernardino County. Credit: NewCastle Gold.

Recent results from drilling at the South Domes project area showed higher grades, including: 2.76 grams gold over 102.7 metres in hole 130C.

“I truly believe the recent drilling by NewCastle has discovered some amazingly high-grade root structures to that low-grade epithermal system,” Beaty said. “It’s going to be fun to hit the property really hard with a pile of drills to see what’s there. In the worst case we have a big deposit we can reopen under the old permits, but best case we have a really exciting upside. There’s just a lot of opportunity to surface value here.”

Equinox’s portfolio will also include: an 83% interest in the operating Koricancha gold mill in Peru; 100% of the feasibility-stage Coringa gold project in Brazil; and 100% of the past-producing Elk Gold gold project in British Columbia.

Once formed, Equinox Gold will control two past-producing gold projects: Aurizona in Brazil and Castle Mountain (above) in California. Credit: Trek Mining, NewCastle Gold.

Anfield controls Coringa, but its main role was to pave the way for Beaty’s involvement in the deal.

“We’re looking at low-risk opportunities that are relatively easy to finance by a company of our size. Aurizona is fully funded right now, and we’ll be able to fund Castle Mountain with minimal shareholder dilution moving forward,” Beaty said.

“We have the potential to build a significant gold company out of existing assets. Since the properties are so advanced, we’ll have the opportunity to look at acquisitions, and we’re already looking at new assets. We hope to come out of the gate in early 2018 with another significant acquisition of a producing asset.”

Sprott Private Resource Lending will provide Trek Mining with an US$85-million senior secured credit facility for construction at Aurizona. Sprott will be entitled to a production payment of US$20 per gold oz. on 75% of the first 400,000 oz. gold produced at the mine.

Furthermore, Sandstorm Gold (TSX: SSL; NYSE-AM: SAND) is selling Beaty 4 million Trek shares and US$15 million in principal debenture. The combined Sandstorm package is worth US$18.2 million.

Sandstorm holds a sliding-scale 3% to 5% net smelter return royalty (NSR) on the Aurizona project, and a 2% NSR on the AngloGold joint venture ground.

Equinox will have $98 million in cash and equivalents and access for up to US$200 million in funding for future project development and acquisitions. The company will initially trade on the TSX Venture Exchange under the symbol EQX, though Beaty said it would graduate to the TSX “as soon as possible.”

Canaccord Genuity analyst Kevin MacKenzie estimates near- to medium-term production from Aurizona at 136,000 oz. per year, and Castle Mountain’s longer-term production profile at between 200,000 and 300,000 oz. annually.

He added that “although we see material upside [versus] the offer price, we note that value recognition associated with the Castle Mountain project remains challenged by its protracted phased ramp-up, and longer-term, phase-two water permit requirements.”