Terranova Minerals (ASX:TNV) is lightly capped at just $7 million, which is bound to change as it has reached an agreement with London listed Pan African Resources plc (AIM:PAF) to acquire its 3 million ounce Manica gold project in Mozambique.
Share price: $0.30
Issued Capital: 22.8m
Terranova will acquire 100% of the Manica Gold Project which has a JORC compliant resource of 2,971,000 ounces at 1.83g/t gold.
Terranova has entered into a share purchase agreement to acquire the Manica Gold Project from Pan African with an initial consideration (at date of issue) of 25,000,000 ordinary shares and $2 million in cash.
The acquisition is conditional on shareholder approval, completion of due diligence and re-compliance with Chapters 1 and 2 of the ASX Listing Rules.
Manica is located 4 kilometres north of the town of Manica, which lies approximately 270 kilometres inland of the port city of Beira and Manica and is on what is called the Beira Corridor.
Significantly, just 2 kilometres (or just 8%) of the Manica project area of 42km2 with 27 kilometres of prime gold bearing strike has been explored - so to say the potential for adding further large gold ounces is an understatement.
Current resources are open at depth and along strike.
Manica comes with drill ready targets and a drill campaign is to be mounted once the transaction, re-compliance and drill planning is completed.
Interestingly, past production in the surrounding area is over 2 million ounces indicating the infrastructure and mining history lends itself to development of Manica.
With the deal, Pan African Resources plc will become a cornerstone shareholder of Terranova, which will undertake a name change to Auroch Minerals.
Terranova Minerals will seek shareholder approval to raise a minimum of $5 million through a prospectus at a minimum price of 30 cents per share (Capital Raising). Patersons Securities will act as lead manager to the capital raising.
Terranova Minerals Chairman, Mr Ben Bussell commented, "The Manica Gold Project represents an excellent opportunity to acquire 100% of an established gold asset with significant resources at an attractive price. The incoming team have the capabilities and experience to ensure the Company is well positioned to advance the Project to production."
The Manica Gold Project is located in central Mozambique, approximately 270km by sealed highway from the port city of Beira on the Indian Ocean. The project is positioned in the Beira Corridor which contains major road and rail infrastructure linking Zimbabwe to Beira.
The area surrounding Manica is well known for hosting gold mines such as Penhalonga, Rezende, Monarch and Old West.
An estimated 2 million ounces of gold has been extracted from the Rezende Mine and surrounding deposits. Importantly, these are along strike extensions of the Manica Gold Project.
The reefs in these mines have typically been classified as porphyry mineralisation within quartz-diorites where gold is hosted in quartz veins. The reefs include Rezende, Penhalonga, King's Daughter, Liverpool, Kent, Violet, Elgin and Golden Gate. The gold and associated minerals were thought to be products of a magmatic product deep in the quartz-diorite stock.
Currently only 2km out of a potential total mineralised strike length of 27km along two shear zones has been explored to date. Historical exploration strategies have prioritised the delineation of known gold occurrences rather than the identification and development of new resources. This presents the Company with a highly prospective area within which it can perform future exploration.
The Northern Shear zone consists of the following prospects:
- Guy Fawkes;
- Vinganca; and
- Boa Esperanza.
The Southern Shear consists of the following prospects:
- Dot's Luck;
- Fair Bride; and
- Try Again.
The Northern Shear, which passes through mineralisation at the Guy Fawkes through to the Boa Esperanza prospect, is where it is host to free-milling gold.
The company plans to primarily focus on the exploration of this the Northern Shearshear, as a potential source of substantial additional free milling gold resources.
The company plans to focus whilst the initial exploration programme will concentrate upon the identification of additional oxide material at the Guy Fawkes Prospect moving east towards Boa Esperanza.
The Southern Shear, which is the Manica Gold Project's secondary exploration target zone, passes through the Dot's Luck and Fair Bride mineralisation.
At Dot's Luck, there is free gold in the oxidised zone and sulphide-hosted gold at depth. At Fair Bride, the most advanced target, a combined measured, indicated and inferred resource of 2.66Moz of gold at a grade of ~1.8 g/t has been delineated. The Fair Bride project is primarily comprised of Sulphide material and it is anticipated that additional mineralisation within the Southern Shear will have similar characteristics
The 12 month exploration plan commencing 1Q1 2013 provides for:
• Detailed infill geological mapping and soil geochemical sampling;
• Airborne electromagnetic and magnetic gradient surveys of the whole property;
• Identification and prioritisation of targets generated by the geophysical, geochemical and geological mapping and interpretation exercises;
• Drilling and/or trenching of prioritised targets;
• Revision of existing JORC code compliant resource statements;
• Metallurgical test work on oxide and transitional ore; and
• Testing of oxide material in Target 1 on the Northern Shear
Apart from the initial consideration to be paid to Pan African, there will be the following deferred consideration based on these milestones achieved by Terranova:
1. Issue of 20,066,667 ordinary shares (at a deemed issue price of 30 cents per share that are issued) upon delineation of at least 400,000 ounces of a JORC Inferred gold resource of Oxide Ore with a cut-off grade of 1.25g/t on the Manica Gold Project (inclusive of the existing 90,000 ounces of JORC Inferred gold resource of oxide ore at a cut-off grade of 1.25g/t that has already been defined) within 4 years from the Date of Issue.
Oxide Ore means gold bearing oxide/transitional ore where gold recovery exceeds 80% of total contained gold by using the metallurgical processes of milling, gravity separation and/or cyanide leaching and the gold can be recovered for a cash operating cost of US$700/oz of gold or less. (Milestone 1);
2. Issue of 20,066,667 ordinary shares (at a deemed issue price of 30 cents per share that are issued) upon delineation of at least 1,000,000 ounces of a JORC Inferred gold resource of Oxide Ore with a cut-off grade of 1.25g/t being defined on the Manica Gold Project (inclusive of the 400,000Koz delineated under Milestone 1) within 4 years from the Date of Issue (Milestone 2);
3. Issue of 24,366,667 ordinary shares (at a deemed issue price of 30 cents per share) that are issued upon completion of a positive Bankable Feasibility Study on either the oxide or sulphide ore on the Manica Gold Project.
This is predicated upon the construction of a mine with at least a ten year life and production scope of 50,000 ounces per annum and at any time after completion of the positive Bankable Feasibility Study, the board of Terranova elects to commence construction of the mine as recommended in the Bankable Feasibility Study and has financing arranged for the construction of the mine, within 4 years from the Date of Issue. At the election of Terranova, this tranche of shares may be satisfied by the payment of $7,310,000 (Milestone 3); and
4. Issue of 7,166,667 ordinary shares (at a deemed issue price of 30 cents per share) that are issued upon production of either oxide or sulphide ore at the plant constructed by the Company. Terranova to process ore from the Manica Gold Project at the capacity specified in the Bankable Feasibility Study, within 4 years from the Date of Issue. At the election of Terranova, this tranche of shares may be satisfied by the payment of $2,150,000 (Milestone 4); and
5. A deferred cash consideration of $4,000,000 which is payable in four tranches of $1,000,000 on achievement of each of the Milestones 1 to 4.
Infrastructure wise, the project is blessed with strong infrastructure with electric power available at Manica with a 33KV power line running through the project area and is linked to the national grid from hydroelectric schemes in the region.
Water supply is available from the Chicamba Dam (Lake Chicamba), the Revue River and a large aquifer. Telecommunication is well-established in the area and mobile phone reception is present over much of the Manica Gold Project Area.
Shareholders meeting and re-compliance with ASX listing rules
The Company will seek the requisite approvals from shareholders for the acquisition, board appointments and the capital raising. The meeting documents will be dispatched to shareholders in the coming weeks.
The acquisition constitutes a change in the nature and scale of the company's activities in accordance with Chapter 11 of the ASX Listing Rules. The company is required to re-comply with the admission requirements of Chapters 1 and 2 of the ASX Listing Rules including obtaining shareholder approval, preparing a prospectus and completing the Capital Raising.
Interestingly, we understand that Pan African was looking to spin-off and list the Manica gold project, so the acquisition is something of a coup for under the radar Terranova.
For a company that just listed on the ASX in mid-late 2011, to have the tiller on an almost 3 million ounce JORC "pre-development" gold project is very rare in our experience. To be so lightly capped like Terranova is with issued capital of only 22.8 million shares is even rarer.
There are not many advanced projects of this size that find there way onto the market in past years. Either they change hands early on, or are evolved up the development curve at significantly greater cost.
Half of the resource is in the higher confidence Measured and Indicated categories, again this would have cost Terranova a significantly greater sum to drill to that level.
The initial acquisition price paid for Manica is very reasonable given issued capital will be boosted to around 70 million shares and $2 million in cash for a 3 million ounce JORC resource.
Post acquisition, on an EV/Ounce basis Terranova would be valued at just $4.37/ounce, well under explorer / developer peer average of around $50 /ounce.
We understand that a previous Pan African study of Manica envisaged a two phased mine design with the first phase being an open-pit mine exploiting gold to a depth of 30 metres at a very reasonable capital cost, before moving underground.
The acquisition hoists Terranova into a peer group that is priced significantly higher than current valuation of Terranova.
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