Ewan Downie’s Premier Gold Mines (PG-T) is taking full control of the Hardrock gold project near Geraldton in northwestern Ontario, in which it owns a 70% interest. The company will acquire the remaining 30% by taking over joint-venture-partner Goldstone Resources (GRC-T), having agreed to pay 0.16 of a Premier share plus 1¢ in cash for each of Goldstone’s 110 million fully diluted shares.
After completing a major drilling program totalling 114,000 metres in 2010, the partners updated the resource estimate for Hardrock this spring, resulting in a 269% jump for measured and indicated resources to 20.8 million tonnes grading 3.73 grams gold per tonne in both open-pit and underground material, or 2.5 million oz. gold. The 15-km-long property package, comprising several historic mines in the Beardmore-Geraldton greenstone belt which produced over 3 million oz. gold from 1938 to 1968, now boasts 11 identified mineralized domains in both open pit and underground forms.
Along with full control of the Hardrock project, Premier will gain the rest of Goldstone’s extensive property holdings in the Beardmore-Geraldton greenstone belt. This principally includes: the underground Brookbank deposit, approximately 50 km west of Hardrock, which hosts indicated resources of 424,400 oz. at a grade of 9.7 grams gold and 276,600 inferred oz. at a grade of 7.9 grams gold; the Key Lake project, 10 km southwest of Brookbank, where recent drilling by Goldstone returned significant intercepts such as 44 metres grading 3.17 grams gold; and the historic Leitch gold mine, 5 km north of Key Lake, which produced almost 1 million oz. gold at an average grade of 31.5 grams gold during its lifetime.
Premier’s president Downie said the acquisition “will secure for Premier one-hundred percent ownership of one of Canada’s fastest-growing gold deposits,” going on to note, “Our substantial combined land holdings in the district provide an excellent opportunity to define multiple deposits with considerable production potential, in addition to terrific exploration opportunities in this re-emerging gold camp.”
Downie provided more enticing reasons for investors to support the acquisition through public filings on SEDI of his recent share purchases. He has bought 37,000 shares throughout the past two months at prices ranging from $5.08 to $6.20, bringing his total shareholdings up to 2.65 million shares.
As president and a large shareholder of Wolfden Resources from 1999 to 2007, Downie led the Nunavut-focused mineral explorer to a takeover by Australian zinc miner Zinifex for $3.81 a share. As a condition of the deal, however, Wolfden first spun out its gold assets into a new company, Premier Gold, leading to his current position.
Under the terms of the Goldstone transaction, Premier will issue up to 17.6 million shares to Goldstone shareholders worth approximately $92.6 million given Premier’s closing price prior to announcing the deal, or 14% of Premier’s outstanding shares on a fully diluted basis. Including both the Hardrock and Brookbank resources attributable to Goldstone, Premier’s acquisition cost is approximately $52 per oz. gold, a decent price when compared with other recent acquisitions in the gold sector. According to a study by the Toronto private investment bank IBK Capital, $71 per oz. gold resource for exploration assets was the average price paid over 66 deals completed in 2010, while an average of $207 per oz. was paid for producing assets. The price is not as attractive when compared with 2009 levels ($29 per oz. for exploration assets and $89 per oz. for producing assets), though the spot price of gold was considerably cheaper then.
Goldstone shareholders stand to receive a 27.3% premium based on each company’s 30-day volume-weighted average price, with both boards of directors unanimously approving the transaction. Notwithstanding the premium, at roughly 85¢ a share the deal still values Goldstone shares at a price significantly lower than its 52-week high reached in November 2010, when the shares traded up to $1.20.
Goldstone’s chairman, interim CEO and largest shareholder, Philip Cunningham has pledged his 12.2 million shares worth $10.3 million on paper in support of the takeover. He bought most of the shares between 2004 and 2008 at prices ranging from 5¢ to 17¢, though these were rolled back 1-to-3.75 in early 2010 following the merger of his Roxmark Mines with Ontex Resources to create Goldstone. This left him in control of 10 million shares acquired at an average post-rollback price of 40¢.
Goldstone suffered from staffing problems in 2010, having fired former CEO Patrick Sheridan and chief operating officer Gary Conn after Cunningham took control of the board by requisitioning a meeting of shareholders. The incumbent directors resigned before the meeting took place. Several site geologists at Goldstone resigned in the midst of the change of control and its vice-president of exploration resigned a few months later, while COO Conn ended up suing the company for wrongful dismissal. The company denies the claim.
Premier originally optioned into the Hardrock JV with Goldstone’s predecessor Roxmark in late 2007. Premier agreed to pay $750,000 cash, issue 400,000 shares and spend a minimum of $7 million on exploration over four years. It has already more than met its exploration requirements, with eight drill rigs active on the Hardrock property completing 70,000 metres of drilling in 2011.
Favourable location and a safe jurisdiction are lauded characteristics of the Hardrock property. The Trans-Canada Highway, Trans-Canada pipeline and major power lines all run through its centre, providing development advantages near mining-friendly towns.
In the potential open-pit portion of Hardrock, measured and indicated resources total 18.2 million tonnes grading 1.85 grams gold per tonne, using a cut-off grade of 0.5 gram gold. Adding another 937,000 inferred tonnes at the same grade brings the total contained oz. gold up to 1.13 million oz.
The underground portion holds measured and indicated resources at a 2 gram gold cut-off totalling 12.85 million tonnes grading 4.57 grams gold for 1.89 million contained oz. gold. Inferred resources tally 9.15 million tonnes at 4.41 grams gold for an additional 1.3 million oz. contained gold. The underground resources are close to and below the historic mine workings, which were primarily within 600 metres of surface. One of the new zones delineated last year is actually an old zone left unmined by a past operator in the early 1960s. Drilling there recently turned up a remarkable 114.5 metres of 7.92 grams per tonne gold.
Premier is advancing several other properties, most notably the Rahill-Bonanza gold project in the Red Lake area of Ontario, a 49% and 51% JV with project operator Goldcorp (G-T, GG-N). The property sits between Goldcorp’s cornerstone Red Lake Gold Mines complex and its nearby Cochenour mine, for which Goldcorp is building a high-speed underground tram expected to partially pass through the Rahill-Bonanza project.
Shareholders of Premier reacted positively to the takeover announcement on June 22, pushing the stock up 17¢ to $5.42 on 1.1 million shares traded.
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