Primero recently bought Brigus Gold for $220 million, Brigus has 1,5 million oz gold in the ground with a capacity to produce 70,000 oz/year. With Brigus mine in their portfolio Primero will produce about 190,000 oz gold and 3 million oz silver per year. All in sustaining cash cost is about $1,100/oz and their the total market cap is $1,1 billion.
From a logical perspective based on the official theory of how these markets work and their structure this merger with Brigus seems very stupid since there are other projects out there with much greater capacity, higher NPV and lower cash costs. For example, the total market cap of both Victoria Gold and Geologix is about $50 million, only about 25% of Brigus total merger value.
It seems even more strange when you consider that Eduardo Luna sits on Geologix board of directors and is on Primeros board as well, the management must therefore be aware that there are much better opportunitys out there, still they choose to ignore them for whatever reason.
Stupid decisions are not uncommon in this sector, for example, New gold bought Blackwater for a staggering $550 m which had only 10% IRR i.e not economic to mine. Then they bought Rainy River for $370 m with a $438 m NPV and a IRR of 13%. So they have spent almost a billion on uneconomical deposits and ignored the economic ones selling for only 5% of what they did spend in total.
The fact that Geologix and Victoria Gold still have not been bought has created tremendous opportunity, we know what the big companies pay for deposits like these and from todays valuations that means thousands of procent higher (or several thousand in Geologix case) than today.
