A bankable feasibility study on Montagne d'Or was released on March 20. Nordgold needed to deliver the study in order to earn in a 55.01% share of the project. Columbus Gold Corp. (CGT:TSX; CBGDF:OTCQX) maintains a 44.99% share. Sector experts immediately began discussing buyout scenarios.
Analyst Michael Curran of Beacon Securities outlined the study, noting, "as part of its earn-in of the project, Nordgold SE (not covered, now private) delivered a bankable feasibility study (BFS) on a 2.75 MMoz open pit reserve, to take its interest to 55.01% (CGT –44.99%). The BFS outlines a 12,500tpd open pit mine capable of producing 237Koz/yr over the first 10 years of a 12-year mine life. Initial capital to build the mine is forecast to be US$361MM (net of tax credit refunds), well below our US$450MM estimate. AISC of US$749/oz (Yr1-10) is better than our US$786/oz estimate."
He also asked if this study opens the M&A Window. "With the BFS completed, and Nordgold's ownership solidified, we expect Nordgold to review its commitment to project development. We maintain our view that Montagne d’Or would likely be better served with "one master," thus expect either Nordgold to look to acquire CGT's minority interest and build the mine itself, or for the partners to solicit interest in selling 100% of the asset to a third party," opined Curran.
"We view Columbus Gold as an attractive speculative play for development success in French Guiana, with investors receiving exploration success potential in Nevada for free," Curran concluded.
The relatively low internal rate of return (IRR) is a concern to experts, although they noted that there are mitigating factors. James Kwantes, editor of Resource Opportunities, wrote in the March 22 issue that "Montagne d'Or's after-tax IRR in the Feasibility Study dropped to 18.7%, down from 23% in the July 2015 PEA. However, there are several opportunities to enhance economics—some of them inexpensive—and Columbus is cashed up to undertake those."
"I spoke to Columbus CEO Robert Giustra after the NR was issued," Kwantes stated, "and he said Columbus has already identified ways to optimize the FS and bump up the economics, over different timelines. In the near-term, there will likely be some improvements in the FS technical report that's due within 45 days, he said. Columbus is also formulating a 4,300-metre, US$1.5-million infill drill plan that could add an extra 180,000 ounces, taking the after-tax IRR above 20%."
Kwantes also speculated on M&A options, noting, "There are several ways this could go, although the two likeliest scenarios are a buyout of Columbus' interest in the project by Nordgold or a sale of the entire project to a third party. Majors operating in the area include Newmont and Iamgold, and the FS puts Columbus on a short list of junior miners with high-quality, 5-million-oz deposits."
Bob Moriarty of 321 Gold, wrote, "The feasibility study goes a long way to making the interests of Columbus Gold and Nordgold align in a good way. Nordgold has earned their 55.01% interest. The study reveals the project has an NPV of about $500 million CAD with a twelve-year mine life of almost 3 million ounces production. While the IRR of the project appears low at 18.7%, there is an additional 1 million ounces of gold in the inferred category within the existing pit that can be turned into reserves with more drilling."
Moriarty also stated that "this project was exceptional before the BFS. It's better now. The numbers are only going to improve. If I use a figure of 4 million ounces of gold and $100 an ounce USD, Columbus Gold should be worth about $1.50 to $1.75 a share for their 45% of the Paul Isnard project."
Moriarty also speculated that there were three possible M&A options. The first is "Nordgold buys out Columbus Gold's 45% interest and puts the project into production." The second is "another major comes along and either buys out Columbus' interest in Paul Isnard or buys out both Nordgold and Columbus." And the third possibility is a "bidding war starts and either Nordgold or a major or two majors get into competition for the project."
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1) Patrice Fusillo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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Disclosures from Beacon Securities Ltd., Columbus Gold Corp., March 21, 2017
Does Beacon, or its affiliates or analysts collectively, beneficially own 1% or more of any class of the issuer's equity securities? No
Does the analyst who prepared this research report have a position, either long or short, in any of the issuer’s securities? No
Does Beacon Securities beneficially own more than 1% of equity securities of the issuer? No
Has any director, partner, or officer of Beacon Securities, or the analyst involved in the preparation of the research report, received remuneration for any services provided to the securities issuer during the preceding 12 months? No
Has Beacon Securities performed investment banking services in the past 12 months and received compensation for investment banking services for this issuer in the past 12 months? Yes
Was the analyst who prepared this research report compensated from revenues generated solely by the Beacon Securities Investment Banking Department? No
Does any director, officer, or employee of Beacon Securities serve as a director, officer, or in any advisory capacity to the issuer? No
Are there any material conflicts of interest with Beacon Securities or the analyst who prepared the report and the issuer? No
Is Beacon Securities a market maker in the equity of the issuer? No
Has the analyst visited the head office of the issuer and viewed its operations in a limited context? Yes
Did the issuer pay for or reimburse the analyst for the travel expenses? Yes.
Analyst Certification: The Beacon Securities Analyst named on the report hereby certifies that the recommendations and/or opinions expressed herein accurately reflect such research analyst’s personal views about the company and securities that are the subject of the report; or any other companies mentioned in the report that are also covered by the named analyst. In addition, no part of the research analyst’s compensation is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.
Disclosures from Resource Opportunities, March 22, 2017
I own shares of Columbus Gold. Columbus Gold is a Resource Opportunities sponsor.
Companies are selected for presentation in this publication strictly on their merits, and Resource Opportunities sponsors are selected on their merits as well. No fee is charged to non-sponsor companies for inclusion, and sponsor companies help financially support the subscriber-funded newsletter by keeping subscription prices low.
The author and their associates are not responsible for errors or omissions. They may from time to time have a position in the securities of the companies mentioned herein, and may change their positions without notice. (Any positions will be disclosed explicitly.)
Disclosures from 321 Gold, March 23, 2017, "Columbus Discovers a Gold Mine."
Columbus Gold is an advertiser. While I don't own shares, I am biased. Do your own due diligence.