The release of the bankable feasibility study for
the JV Montagne d'Or gold project in French Guiana, with Columbus Gold in
partnership with Nordgold, has experts speculating on buyout prospects.
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."
