Red Back says partner key to topping Randgold bid for Moto

Red Back Mining (RBI-T) president and CEO, Richard Clark, says Randgold Resources (RRS-L, GOLD-Q) made “a very smart offer” for Moto Goldmines (MGL-T, MOE-L) but he was tightlipped on his company’s plans to outsmart Randgold by the deadline next Tuesday, Aug. 5.

Randgold’s $546 million offer for Moto topped Red Back’s original $513 million all-share deal by including a heavy cash component ($244 million) through a side deal with major AngloGold Ashanti (AU-N). If the deal goes through, Anglo and Randgold will create a 50-50 partnership for the project at stake; the near-term Moto gold project in the Democratic Republic of the Congo.

“I don’t think there are very many people, if anybody on the street that expected (Randgold president) Mark Bristow to join up with Anglo or any other party to make the bid,” Clark says. “We believed that we would be head-to-head with Randgold ourselves. He very much changed the nature of the game and I think it was a smart move.”

Clark says that because Randgold has structured the deal as a joint venture development that the company has set certain expectation levels with the DRC government. Randgold says it’s received a formal written support from the DRC government.

“Any response bid will need to take into account the desires and expectations of the DRC government,” Clark says, noting, “Anglo is certainly one major gold producer in the world but there are others.”

Raising cash won’t be a problem for Red Back, which is part of the Lundin Group of Companies. Chairman Lukas Lundin is familiar with the DRC; another company, Lundin Mining Corp. (LUN-T, LMC-N), brought the DRC-based Tenke- Fungurume copper-cobalt mine into production this year. However, analysts say taking on a large amount of debt could make Moto less attractive.

Clark isn’t worried about raising cash; he says partnering with a major is key to the deal being accepted. He hints that Red Back, too, has been looking into a similar strategic partnership with a major.

“I think it’s safe to assume, that given the structure that Randgold’s put together, that we’ve had whatever level of discussion you want to try to think about with other potential partners,” Clark says.

Red Back’s next challenge is finding out the details of the lock-up agreements that Randgold has made with 36.1% of Moto shareholders. The company has asked to see the agreements but have been having a legal battle over whether it’s required.

“In order to match the deal we need to understand all of the aspects of the deal,” Clark says. “What are they concerned about if these lock-ups are so strong?”

He wouldn’t confirm whether Red Back would make another offer for Moto. “The market will see what Red Back’s decided to do sometime next week.”

If Red Back decides that the Moto project isn’t worth the price on the table, it will receive a US$15.25-million break fee from Moto.

The Moto project has reserves of 42.3 million tonnes grading 4 grams gold per tonne for 5.5 million oz. gold. An ‘optimized’ feasibility study looked at building an open pit and underground mine that would produce 484,000 oz. gold per year over the first five years at an average cash cost of US$303 per oz.