DEALS DEALS DEALS So what about the soon (?) to surface offers spree? And I really hope it gets very exciting, because the truth is it has been a little boring here lately. Multiple offers, biding wars, and so on is what we need. I am curious what types of offers will need shareholder input. Lots of these deals you read about have the caveat of 'With Shareholder Approval'. Now a merger for sure needs that, but what about the Zhoajin deal that was proposed for example? Seems like the BOD might be able to approve that unilaterally?
Now if the Zhoajin deal , or a variation of it, is one of the offers (And I would be surprised if it wasn't. It exactly fits what they are looking for: to expand gold production fairly quickly without spending big bucks on any one project (so no billion $ Fruta del Norte type projects) , and to get something happening for them in Ecuador.) Now it was subject to confirmation drilling, but that is much different than exploratory drilling , and there doesn't seem to be any reason to think the new drilling wont confirm the old drilling.
Let me throw out some numbers as to what I think the Zhoajin deal would be worth to me , a shareholder, and this might be useful if there are other offers that we need to compare it to , and perhaps vote on. Maybe we are a little more clear headed now: if a bunch of offers happen we might just get a little over enthusiastic.
So as I see it , and remember , the offer was basically $36 m to Core upfront for 20% of Core, and 60% of DGF, with Zhoajin paying for the new 2000tpd mill at DGF. With the $36m ( I am not sure if some of that was $US), Core can clean up their finances, expand the Portovelo Mill to 2000tpd, buy trucks, get the Zaruma underground going again, and check out Linderos some more (let's forget about Copper Duke for a moment). Then if they can dig out 350 tpd from Zaruma (Washer figured he could produce 100,000 oz Au / yr at Portovelo without expansion, and at that time Zaruma was the only place Ecuador would let him mine, so 750 tpd from Zaruma at a little less than 15 gpt would have been needed to achieve. He did get close to 50,000 oz one year, but this was from the ,somewhat spent, upper regions, and he figured the place to go was deeper.), and if it averages 15 gpt, that would be 50,000 oz /yr. Seems very doable. And then if they truck 1000 tpd from DGF ,and/or LInderos, at 3.5 gpt that is another 36,000 oz/yr., or 86,000 oz total. That leaves 650 tpd capacity at the mill, so 100,000 oz /yr seems quite possible.
And the 2000 tpd mill that Zhoajin would build would need material at 5 gpt to get to the same 100,000 oz /yr. I don't know, if they will get that good a grade.
What would those two be worth? Well, at Fruta del Norte, Lundin hopes to produce 310,000 oz /yr. For this they have spent around a billion. And the market cap right now is $1.5 b, and they have $800 m long term debt. Fruta del Norte looks like Lundin's only project in Lundin Gold, so that production seems to be valued as high as $2.3 b or approx $750 m per 100,000 oz / yr production. Now F del N is very low cost so that is a factor. If you look at B2Gold they have a market cap of $4.5 b , not much debt, pretty low AISC, perhaps some geographic risk (Mali) , and no big value adding new projects coming up soon. Their production is around a million oz per yr. , so the market seems to value it at $450 m per 100,000 oz production. If you look at other companies you get similiar results. So I think it is reasonable to say that for Core, which I assume will be low cost at both Portovelo and DGF, 100,000 oz /yr will be worth $400 m. (If you take 100,000 oz / yr and an AISC of $850, with a gold price of $1550, that is $70 m free cash flow / yr. Got to be worth $400 m)
Therefore Portovelo could be worth $400 m , and 40% of DGF somewhere around $120 m,total $520 m. And the Zhoajin deal would create around 200,000 shares total, and so a share price of $2.50. This might not happen for awhile, 2020 would be a building year for Core at Portovelo, and the new mill at DGF wouldn't be operational until the end of 2021 (?). And I am going to keep forgetting about Copper Duke here, as I have no idea what value can be placed on it, but in this deal , Core would still own it 100%.
In this deal, Zhoajin would get 60% of a mill that would be worth between $300 and $400 m, and 20% of Core overall, which I figured could be worth $520m without C.D. So that's somewhere in the $300 m range , with a spend of $100m. Good deal for them. And it comes pretty quick. Much better deal than what Lundin did at Fruta del Norte where they spent about a billion and now it has a market cap of 1.5 billion. And they have had money in for a good 5 years now.
My conclusion I guess, is that if Zhoajin is one of the offers, and I get to have a say, I wont be voting for any buyout at 50 cents a share ,all shares, or all cash deals. Regardless of the company making the offer.
And the risks I see to this proposed $2.50 share price, would be, on the downside: the price of gold, that Washer didn't have a clue when he dug that decline at Zaruma for all those years; and on the upside that C.D. is the next big copper/gold mine in the world, the price of gold, and that DGF turns out to be bigger than expected and a larger mill is built, or Linderos turns out to be something and they can do a heap leach there as has been suggested. (Still leaves Jerusalem which they could sell to Lundin for $50 m perhaps)