Desjardins report on today's newsExpress Pulse -- Clifton Star Resources Inc.: Amended Duparquet option agreement lightens the load for Clifton Star
Clifton Star Resources Inc. (CFO C$1.15, TSX-V)
Rating Buy--Speculative Target C$2.00
Amended Duparquet option agreement lightens the load for Clifton Star
-- Brian Christie (416) 607-3013, brian.christie@vmd.desjardins.com
Impact: Positive
Clifton Star announced a renegotiated agreement in principle with the owners of the Duparquet project with regard to its option to purchase the remaining shares of the companies that own the project (in which Clifton currently owns 10%). The Duparquet project includes the Beattie, Donchester and Dumico properties.
CFO had previously faced option payments of C$22m due on December 1, 2012 and C$30m due in December 2017 to acquire 100% of Duparquet. The new agreement provides for a longer payment schedule that is more in line with the project’s development path:
-- C$2m on December 1, 2012 and issuance of 250,000 shares of CFO
-- C$10m on December 1, 2014
-- C$10m on December 1, 2015
-- C$15m on December 1, 2016
-- C$15.2m on December 1, 2017
Following these payments, CFO will own 100% of the properties. It may exercise any or all options in advance of the proposed date. The amended agreement is in the process of being formally ratified by shareholders.
Clifton Star has also reached an agreement to repurchase a portion of the royalty from the Duquesne property (CFO owns 100% of the property, subject to a 3% NSR (net smelter return)). CFO will pay C$1m to the royalty owners to buy back a 0.5% NSR interest (leaving a remainder of 2.5%). Annual portions of 0.5% may be repurchased at C$1m starting in 2014 if specific conditions are met.
We view the deal positively as it reduces the immediate financial burden on Clifton Star, negates the need for a dilutive financing and allows the company to continue exploration and development work at Duparquet (a preliminary economic assessment is scheduled for completion at year-end 2012, including a resource update). We reiterate our Buy--Speculative rating and C$2 target on Clifton Star.
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