A very interesting development has been spotted in a gold-copper mine I talked about before here. I noted that it's worth investing in the Philiippines as the country has large gold and copper resources, ranked in the top 5 in the world. At the time of that article, St. Augustine Gold & Copper Ltd. (OTC:RTLGF) was at CAD 0.3/share. Just recently, the share price of the company jumped up to CAD 0.4/share on news that Australia based CGA Mining Ltd. (OTC:CGAFF) is going to be bought out by B2Gold Corp. (BGLPF.PK) for $1.1 billion. Each shareholder of CGA will get 0.74 of a B2Gold Corp share. The premium on the average share price of CGA Mining Ltd. is 31%.
This buyout is significant due to the fact that CGA Mining Ltd. owns 20.75% of St. Augustine Gold & Copper Ltd. The reason is that St. Augustine Gold & Copper Ltd. (SAU) is now 20.75% owned by B2Gold Corp. Previously, CGA had about $20 million of cashflow per quarter based on the annual report of 2011, after the buyout B2Gold Corp. will have $28 million in cashflow per quarter based on its latest earnings report added to the $20 million of cashflow per quarter from CGA, totaling $50 million in cashflow. With this increased cashflow, B2Gold Corp. could invest a higher amount of its cash reserves in SAU, which is certainly beneficial to SAU shareholders. The other big part (50%) of SAU is owned mainly by investor groups led by Conrado T. Calalang.
SAU is developing the King-King Copper - Gold project in the Philippines (Measured and Indicated resources: 10.3 million ounce gold and 5.4 billion ounce copper). It is estimated that SAU will have a bankable feasibility study and a mining permit end of 2012. The mining permit (Declaration of Mine Project Feasibility (DMPF) application) was successfully submitted by Nadecor to the Department of Environment and Natural Resources (OTCPK:DENR) and Mines and Geosciences Bureau in May 2012. Construction should start in 2013 and could benefit tremendously from the merger between CGA and B2Gold Corp. As I stated before, the best moment to buy a development stage company is during start of construction, which is right at this moment. If the bankable feasibility study and mining permit are delivered I expect a strong increase in the share price of SAU. To date, management already invested $70 million in the project. It is expected that CAPEX will be around $600 million with a NPV of $1 billion. If the share price of SAU continues to strengthen, together with possible equity placements by B2Gold Corp. and other institutions, we could look at a 50/50 debt equity financing soon. SAU had $16 million cash on hand in April 2012, which will probably be at $10 million at this moment in time, so an additional private placement/debt financing will occur soon.
Previously, on 10 June 2012, Nadecor threatened to cancel its deal with SAU to develop the King-King property, which was signed on 27 April 2010. But this threat was quickly rendered obsolete by the Court of Appeal and will allow the project to continue on schedule. It will take a long time before production for such large properties (probably production late 2015), but it is worth speculating on at this early stage of development.
There are several risks involved while investing in SAU which include political risk, permitting risk, funding risk. On the political risk front I should point out that the Philippines government has issued an executive order in July 2012 to increase royalties on mining companies, while denying new mining permits. This takes me to the permitting risk. As we are awaiting mine permitting the coming months, a decline in the permitting process could have negative consequences on the share price. Lastly, if insufficient funding is received within a year, the company will be unable to maintain solvency.
Disclosure: I am long OTC:RTLGF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.