Vancouver-based Asante Gold Corp (CVE:ASE) has reached a deal to buy the 1 per cent net smelter return (NYSE:NSR) royalty Goknet Mining Company holds on PMI Gold's (CVE:PMV) Obotan gold project in Ghana.
The consideration for the royalty is $22.5 million, consisting of 45 million shares in Asante stock, at a deemed value of 50 cents per share.
"Based on an estimated mine production of 220,000 oz of gold per year, the 1% NSR royalty interest would represent 2,200 oz of gold and projected annual revenue of $3.74 million @ US$1700 per oz gold price," said president of Asante, Douglas MacQuarrie, in a statement Monday.
"The acquisition of the Obotan royalty provides Asante with a solid asset base and near term cash flow to fuel future growth."
MacQuarrie also told Proactive Investors today that these gold production royalties have the advantage of leverage to the gold price, without "excessive exposure" to the production costs, and therefore trade at a premium in the market.
The deal still requires regulatory, third party and shareholder approvals. It is expected that a private placement financing of up to $2 million will also be announced on market terms after Asante's shares resume trading. Shares in the company were halted on Friday pending news.
Asante's MacQuarrie is also the managing director of Goknet. MIA Investments, a private company owned by the MacQuarrie Family Trust, owns a substantial number of shares in Asante and Goknet.
Asante said it has appointed two independent directors to act as a special committee that will oversee the transaction, and has reviewed comprehensive legal reports, as well as a positive independent fairness opinion of the deal.
PMI Gold has previously announced that the Obotan project has a post-tax net present value of US$387 million, assuming a US$1,300 per ounce gold price, and a 5 per cent discount rate. It also has a projected post-tax internal rate of return (NYSE:IRR) of 28 per cent, and a capital payback period of just under 3 years.
Start of construction is targeted for the first quarter of next year, for first gold production beginning in 2014, conditional on approvals and financing arrangements.
At current prices of $1,600 an ounce of gold, the post tax net present value of Obotan rises to US$686 million, PMI Gold calculated, with a post-tax IRR of 43 per cent, and a payback period of 2 years.
Average production is slated for 221,500 ounces of gold per year for the first five years, with total production estimated at 2.26 million recovered gold ounces over the 11.5 year mine life. Project revenue over the life of the mine is forecast at a whopping US$2.9 billion using the $1,300 an ounce gold price, and at US$3.61 billion using the higher price of the yellow metal.
Average cash operating costs are anticipated at US$626 per ounce, and the capital cost estimate for Obotan is US$296.6 million, including a pre-strip mining cost of US$82.2 million.
Vancouver-based Asante is a gold royalty and exploration company, exploring the Fahiakoba Concession in the centre of Ghana's Golden Triangle between Perseus Mining's (TSE:PRU) 280,000 ounces of gold per year Edikan mine, and AngloGold Ashanti's (NYSE:AU) 315,000 ounces of gold per year Obuasi mine.
In September, the company said it collected final assays from a soil auger program on its Fahiakoba mining concession. Auger holes were drilled to depths of seven metres to test for blind gold mineralization within weathered bedrock below widespread alluvial cover.
Anomalous gold values ranged from 25 to 650 parts per billion (ppb), with background levels of 10 ppb gold or less. The assays were part of a 1,200 auger-hole soil geochemical drill program designed to outline additional drill targets.
The junior gold explorer launched its 5,000 metre maiden diamond drill program at the property in March after its IPO in February, and based on early positive drill results decided to complete additional exploration before continuing the program.
Aside from the 22.07 square kilometre Fahiakoba concession, Asante's priority this year is to expand its footprint, as MacQuarrie previously told Proactive Investors in July that the company is looking at potential acquisitions, with the news today providing proof of this.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.