Fronteer wants all of Long Canyon (September 20, 2010)

Fronteer Gold (FRG-T) is close to securing a long coveted full interest in its key asset by acquiring AuEx Ventures (XAU-T) for $238 million.

The deal, which is made up of a combination of cash and stock, would secure the Long Canyon gold exploration project in Nevada for the company.

Vancouver-based Fronteer currently holds 51% of the project while AuEx has the remainder.

“This deal was a long time in the making,” says John Dorward, Fronteer’s vice-president of business development. “Discussions about consolidating the property had been ongoing and AuEx just thought it was the right time to do it. Our consistent view has been that this project makes sense in the hands of one party and that should be us.”

Fronteer will be getting the project all to itself without having to take on any debt either.

Thanks to a bulging treasury of $180 million, the company will still have over $120 million in the kitty if and when the deal is done. Preserving that strong cash position will come thanks to the structure of the deal which will see AuEx shareholders get 0.645 of a Fronteer share, 66¢ in cash and 0.5 of a share in a new exploration company.

AuEx shareholders are set to vote on the deal in late October.

But Long Canyon isn’t the entire story of the acquisition. If consummated the deal would also see Fronteer acquire AuEx’s 49% stake in the West Pequop property which is adjacent to and on the other side of the mountains at Long Canyon.

“Getting West Pequop is part of an important consolidation process in the district as along with Long Canyon, it pushes the known Carlin-style mineralization farther east than it has ever been before,” Dorward says.

West Pequop is currently an early-stage exploration project operated by majority owner Agnico-Eagle Mines (AEM-T, AEM-N).

The project currently has 1.2 million tonnes in the indicated category grading 1.63 grams gold per tonne for 64,000 oz. gold and 5.5 million tonnes of 1.41 grams gold for 249,441 oz. gold in the inferred category. Agnico, however, has not given much indication that the project is a high priority for it.

Still the Pequop area of eastern Nevada is considered an emerging gold trend and Fronteer is doing its part to become the dominant player there.

As for what it plans to do at Long Canyon once it takes full control of the property, Dorward says it will largely be business as usual.

“We’re already pushing forward on the project aggressively,” he says. “So it will be a continuation of what we are doing. We can’t really move any faster than what we already are.”

The company is looking to get a mine into production in the second half of 2013. It released a preliminary economic assessment last year that was based on drilling done in 2008. Fronteer plans to update those numbers in the first quarter of next year and Dorward says such an update, “will probably change the scope of the project markedly.”

Long Canyon currently has measured and indicated resources of 12.2 million tonnes grading 1.71 grams gold for 672,000 oz. gold and additional inferred resources of 10.4 million tonnes grading 1.65 grams gold for 552,000 oz. gold.

As for the 0.5 share of a new exploration company that AuEx shareholders will get as part of the deal, that new company’s portfolio will be made up of the exploration assets that aren’t in the Pequop district. The new exploration company will also start off with $5 million in cash. Once the deal is finalized, AuEx shareholders will be left with an 18.6% stake in Fronteer, and a 90% stake in the new exploration company.

In Toronto on Aug. 30 — the day the deal was announced — Fronteer shares were off 8% or 63¢ to $7.76 on 2.19 million shares traded, while AuEx share rose 27% or $1.19 to $5.69 on 3.32 million shares traded.