Eike still likes gold (November 29, 2010)

While Brazilian billionaire Eike Batista has swelled his fortune on Brazilian offshore oil over the last five years, he still has an appetite for the commodity that helped propel him to fame and fortune many years ago.

Batista, through his Rio de Janeiro- based company EBX, is launching a bid for Ventana Gold (VEN-T) — one of the gold market’s hottest stories over the last year thanks to its world-class La Bodega gold-silver discovery in the mountains of Colombia.

EBX’s all-cash offer of $12.63 per Ventana share represents a 26% premium on the company’s share price prior to the announcement, but investors clearly believe a superior offer is on the way. News of the EBX offer sent Ventana shares up as high as $14.04 on Nov. 17 before closing at $13.86.

For its part, Ventana says its board is talking to advisers as it considers how best to respond to the bid.

The offer comes just over a week after Ventana announced a scoping study on the project which included highlights of annual gold production of 301,000 oz. at a cash cost of US$322 per oz. for the first six years of a 14-year mine life.

The study also estimated it would cost US$297 million to build a mine that would then generate a pretax net present value of US$807 million using a 5% discount rate and a US$1,000 per oz. gold price.

Batista’s interest in Colombia was hinted at during an appearance on The Charlie Rose Show in February of this year.

Rose ran down a list of South American countries getting Batista to comment on the economic potential of each, and when arriving at Colombia, Batista jumped right in.

“Great. Great. Colombia I think is great,” Batista enthused. “I would put three South American countries in the same league: Chile, Colombia and Brazil.”

Such confidence in the once maligned country could also be read in EBX’s already owning about 20% of Ventana. That means it would cost EBX roughly $1.23 billion to buy the remaining shares at the offer price.

Batista — who was ranked the eighth richest man in the world by a recent Forbes estimation, with a net worth of US$27 billion — has a long and colourful history in the mining industry, and has now outshone his father, who served as Brazil’s mines minister and head of Vale do Rio Doce (now Vale).

German schooled, Batista returned to his native Brazil in his early 20s to participate in the gold rush that was going on in the Amazon jungle at that time. Establishing himself as a gold trader, he bought gold from garimpeiros and sold it for what he claims was a 10% profit margin.

Batista then used the $6 million in profit he generated from trading to help start up his first mine. From there, Batista went on to build a total of eight mines worldwide, but was perhaps most known by Canadian investors for his failed attempt at building a gold mine in Greece with TVX Gold.

Ventana’s recent scoping study put a total of 27.8 million tonnes of ore in the inferred category grading 3.9 grams gold per tonne, 21.5 grams silver per tonne and 0.14% copper for 3.5 million oz. gold, 19.2 million oz. silver and 84.6 million lbs. copper. Those resources came from four main areas, the La Bodega zone, the La Mascota zone, the La Mascota southwest extension zone and footwall patches.

On Nov. 16, the day before the EBX offer was announced, the company also released strong drill results from a new footwall area in the La Bodega zone. The highlight intercept came in at 12 metres grading 16.78 grams gold. The release also said the latest exploration results indicate that the La Baja zone was developing into a significant extension of the more defined La Mascota zone.