The Gold Report TGR: We have seen more M&A activity lately with Goldcorp Inc. (G:TSX; GG:NYSE) buying Kaminak Gold Corp. (KAM:TSX.V) and Endeavour Mining Corp. (EDV:TSX; EVR:ASX) acquiring True Gold Mining Inc. Those are the big ones, but you have been watching some of the smaller ones as well. Can you tell us about one of them?
TL: Indeed. Last week, Rye Patch Gold Corp. (RPM:TSX.V; RPMGF:OTCQX) announced it entered into a definitive agreement to acquire the Florida Canyon mine in Nevada from Admiral Capital, which seized the asset after the previous owner couldn't meet its debt commitments.
A new PEA on the property has outlined a mine plan in which more than 600,000 oz gold could be recovered at an all-in cost of less than $900/oz for an initial investment of less than $30M. More details will obviously emerge in the next few days and weeks but at first sight this seems to be a really good deal. Rye Patch will be paying $15M in cash and issue 20M shares for the initial purchase, followed by $5M in either cash or shares when the commercial production restarts (planned in H1/17). Based on the share price of Rye Patch before the deal was announced, this means the total consideration was less than US$25M, which is less than 0.25 times the after-tax NPV of the project at $1,200/oz gold.
TGR: Why could this deal be important for Rye Patch?
TL: Well, acquiring an asset at less than 50% of the NPV always is accretive for one's shareholders, but what could be even more important is the fact Rye Patch will join the ranks of producers within the next 12 months; it expects to start producing gold at Florida Canyon at a rate of 75,000 oz per year from next year on.
The additional cash flow will obviously also help to fund the development of the nearby Lincoln Hill project and on top of that, Rye Patch will gain a lot of experience operating a heap-leach mine that it could then use to ensure a smooth start-up at Lincoln Hill before the end of this decade.