Gran Colombia and Medoro agree to merge creating stronger player in Colombia’s gold sector

Apr. 14, 2011 9:57 AM ET

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Gran Colombia Gold (TSX:GCM) and Medoro Resources (TSX:MRS) announced last night that they had entered into an agreement to merge, creating a new junior gold company with a more diversified mix of exploration and production interests in Colombia.

Colombia is a highly sought after destination for gold companies, in part thanks to the successful suppression of violence in the country’s largely underdeveloped, and underexplored, interior which has opened up vast areas to companies looking to define and develop mineral resources.

The merger will bring together Gran Colombia’s gold mine with Medoro’s Marmato Gold Project. Both assets are located in the mid-Cauca gold belt near Medellin, Colombia.

The Marmato deposit currently has a measured and indicated resource of approximately 6.6 million ounces of gold and an additional inferred resource of approximately 3.2 million ounces plus 37 million ounces of measured and indicated silver resources plus an additional 22 million ounces of inferred silver resources.

On a fully diluted, pro-forma basis, shareholders in Gran Colombia will own 56% of the combined company, which will have a market capitalization north of CAD$1 billion.

The two company’s noted a number of reasons why the merger makes sense. Arguably most important, the new company will have a strong growth profile, with production expected to grow from 109,000 ounces in 2011 to 630,000 ounces in 2016.

This would firmly move the company from junior to mid-tier producer status. For Gran Colombia shareholders, the merger brings in an large development project to diversify the company’s current status as a one mine company.

For Medoro shareholders, the addition of Gran Colombia’s cash flow and operational experience in Colombia help reduce the risk of financing and developing Marmato.

The combined entity will also boast a combined exploration footprint of approximately 43,000 hectares, which should generate plenty of exploration and development opportunities.

"The combined company will have exposure to two large production and development projects, at a time of record high gold prices. With Colombia open to investment in the sector this merger offers unparalleled synergies and opportunities in the market. The two projects bring significant economies of scale, production growth and exploration potential,” Robert Metcalfe, Chairman of Medoro, stated.

Gran Colombia Gold reported revenues for the 12 months ending December 31, 2010 of $20.2 million from the sale of 14,071 ounces of gold at an average realized price of $1,385 per ounce.

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