African gold miner Red Back Mining and African gold developer Moto Goldmines have announced a friendly business combination where each outstanding common share of Moto will be exchanged for 0.45 of a common share of Red Back. Based on Friday's closing price of Red Back's common shares at CAD 10.45 a share, the transaction value is around CAD C 513m, and represents a premium to Moto shareholders of about 40%, based on the 20-day volume-weighted average of both companies' common shares in Toronto.
The merged entity would be targeting production of one million ounces a year, clearly signalling an intent to join the exclusive rankings of global Tier I gold diggers. Red Back, already a global Tier II gold miner, holds interests in and operates gold mines at Chirano (Ghana) and Tasiast (Mauritania), and could (by itself) be producing 500,000 ounces of gold a year by 2012, nearly doubling 2008 production, if its own projections unfold as planned.
Red Back is anticipating 2009 production of 400,000 ounces at cash costs of USD 385 an ounce, up from 260,000 ounces in 2008. While both Red Back mines appear to be situated in gold provinces that could yield up further deposits, Red Back may also move further up the production ladder on the back of corporate activity, as now appears to be the case.
In February this year African miner Randgold Resources, one of the world's more highly regarded (and expensive) gold stocks, effectively put Moto into play by confirming the possibility of a scrip offer. For its part, Moto has one of Africa's best undeveloped gold projects - in one of the continent's most challenging countries - the Democratic Republic of the Congo. Moto has a 70:30 joint venture with DRC parastatal group Okimo for the project's 22.5m ounce gold resource, of which 15.8m ounces are attributable to Moto.While Moto's DRC licence status has now been fully cleared, Moto has significant country risk and infrastructure challenges and, of course, one of the world's great gold properties. Moto is truly world class with over 20m ounces of high grade gold resources drilled up since 2003. The DRC's one time colonial masters mined over 11m ounces from the Moto gold camp until Congolese independence in 1960. There is no major gold mining company in the world that has not been dazzled by Moto's orebody; the biggest, Barrick, once owned the property, until yet another DRC civil war, in 1998.This could well be the start of a bidding war. Randgold Resources could return to interest, as could fellow African miner Golden Star, which previously held a stake in Moto. AngloGold Ashanti may announce a bid, given that it already holds a DRC gold project; Newmont may also emerge as an interested party.Selected West/Central African gold names
Tier I & II gold names in West/Central Africa
* 12 month
Source: market data; table compiled by Barry Sergeant