Placer has agreed to pay, upon closing, US$3.01 per share in cash. Once it acquires all the stock, the price will be about US$255 million, including debt. The deal is expected to close after regulators give their approval.
The deal allows Placer Dome to gain a large land position in a prospective area, says President Jay Taylor. “Factoring in [East African Gold Mines’] debt, we paid approximately US$100 per reserve ounce, or US$70 per resource ounce,” he adds, “and that’s in line with market levels, considering the location and quality of the operation.”
Last year, after shelving a proposed initial public offering that did not please all of the shareholders, management of East African Gold Mines decided to sell the company in order to achieve liquidity.
The private company has a total of 81.4 million shares and 27 shareholders, including AngloGold, with a 10.3% interest, and institutional investors, such as Goodman & Co., with 14.7%, Macquarie Bank, with 13.8%, Lion Selection, with 10.9%, CDC Capital Partners, with 10.5%, African Lion, with 6%, and Standard Bank London, with 5%. In addition, East African Chairman Geoff Stewart holds a 13.5% interest.
The flagship North Mara mine, 100 km east of Lake Victoria, was commissioned in September 2002. It consists of three deposits, all of which remain open at depth and along strike. The Nyabirama open pit feeds a 2-million-tonne-per-year processing plant, and the nearby Nyabigena and Gokona deposits are also being mined.
Total reserves are pegged at 2.9 million oz. contained in 24.6 million tonnes of material grading 3.7 grams gold per tonne. Measured and indicated resources, including reserves, are estimated to be 43.9 million tonnes grading 3 grams gold, or 4.25 million contained ounces. An additional 600,000 tonnes grading 5.2 grams gold, or 102,500 contained ounces gold, are classified in the inferred category. These estimates were prepared according to the Australasian Code for Reporting Mineral Resources and Ore Reserves and were based on a gold price of US$310 per oz. for Nyabirama and Nyabigena and US$330 per oz. for Gokona.
Based on current reserves, production is estimated at 220,000 ounces per year at cash and total costs of US$200 and US$252 per oz., respectively. The average stripping ratio for all three deposits is 5.8-to-1.
North Mara produced 79,757 oz. gold in the first five months of 2003 at cash and total production costs of US$198 and US$249 per oz., respectively. The recovery is 94.3% from a mill head grade of 3.26 grams per tonne.
East African Gold Mines has a financing arrangement that consists of debt and hedging contracts. Its project loan totals US$43 million, and its hedging contracts cover 825,000 oz., scheduled for delivery at 25,000 oz. per quarter over the next eight years at a flat gold price of US$308.60 per oz.
“After consolidating East African Gold Mines’ hedges and reserves, our percentage of reserves hedged will be unchanged,” says Taylor. “Acquiring these hedges in no way alters our commitment to reducing our existing hedge book below two million ounces by year-end.”
In the near term, Placer intends to increase the mill throughput capacity to about 2.4 million tonnes per year, as well as convert current resources to reserves. In addition to North Mara, EAGM holds a 100% interest in a portfolio of tenements thta cover 423 sq. km within the North Mara region. Placer says there are numerous targets along the Mara shear zone, as well as in the area surrounding the Nyabigena and Gokona deposits. Farther to the west, at the Dett prospect, drilling intersected new gold mineralization. The major plans to spend about US$3 million per year on exploration.
“Placer Dome is a natural fit to acquire East African Gold Mines,” says Stewart. “Their history of managing in developing areas and their focus on sustainable mineral production ensure that the East Africa’s efforts in this region will be continued and improved. The foundation for a long-life mine is in place, and the project will benefit from having a well-capitalized major to develop it further.”
In other news, Placer Dome is walking away from the once-promising Nyanzaga project in the Lake Victoria Goldfields of Tanzania.
The project caught the eye of the major in 2002 when Australia-listed
The agreement covered 320 sq. km, including the Nyanzaga licence, where Sub-Sahara identified a broad zone of multiple gold-bearing structures extending for 400 metres in a north-northwest direction.
The major took over the project in February 2003 and spent in the order of US$650,000 before deciding to back out. No official reason was given for the termination, though a representative of Sub-Sahara says the size of the project may have proved disappointing to Placer Dome.
Meanwhile,
Lakota also owns 80% of the Tannor property, north of Ikina, and all the Bermuda property, which adjoins the Ikina-Tannor boundary.
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