Peruvian Gold launches bid for Gabriel

With a healthy cash position of approximately $12 million, Peruvian Gold (PVO-V) has taken a shine to the eastern European gold projects of Gabriel Resources (GVU-V) and has arranged to merge with the Toronto-based junior.

Under terms of the proposed arrangement, Gabriel shareholders will exchange each of their shares for 1.4 Peruvian shares. Peruvian will be required to issue a total of 33.3 million shares. Gabriel’s board is recommending acceptance of the offer. In the event that either party fails to perform its obligations under the merger agreement, a $1-million break-up penalty will be imposed.

The bid is subject to a number of conditions, including the submission by Gabriel shareholders of not less than 75% of the outstanding shares. A formal offer was expected to have been mailed to Gabriel shareholders by April 2, and will remain open for acceptance for a period of 22 days.

Certain Gabriel shareholders have entered into a lock-up agreement with Peruvian and have agreed to tender 14.3 million shares to the offer, representing approximately 60% of the 23.8 million outstanding shares.

The day before the proposed takeover was announced, Peruvian closed at 99cents, while Gabriel last traded at $1. Peruvian currently has 14.2 million shares outstanding, or 17.2 million fully diluted.

In a joint news release, Peruvian and Gabriel stated “that a combination of the two companies is mutually beneficial, as it will permit the majority of Peruvian’s working capital to be used to develop and explore Gabriel’s prospective resource properties in Romania and Bulgaria.

Up to now, Peruvian Gold has been focused on the exploration and development of copper and gold properties in Peru. However, Peruvian President David Henstridge has said he likes the resource package that Gabriel has put together.

Gabriel’s principal asset is a 65% interest in the Rosia Montana joint-venture gold project in northwestern Romania, with the right to earn an additional 15% from partner, Regia Autonoma a Cuprului, a state-owned mining company. The project contains an inferred resource of 48 million tonnes grading 1.7 grams gold, equivalent to 2.6 million contained ounces of gold.

A preliminary scoping study by Australia-based Resource Service Group estimates 38.5 million tonnes of the resource is potentially amenable to open-pit mining at a stripping ratio of 1.7 to 1. A 30,000-metre infill drilling program is under way, setting the stage for a full-scale feasibility study planned for later this year.

Gabriel also holds a 65% interest in the Bucium gold project in Romania, and the company recently finalized the acquisition of Castle Europa, a privately held exploration company with joint-venture interests in gold projects in Romania and Bulgaria.