Greystar Resources Has A Straight Path Through To Production Thanks To The IFC
By Charles Wyatt
minesite.com
With a mighty leap in the back straight – pace Cheltenham Festival - Canadian and AIM listed Greystar Resources is now clear of the rest of the field, but still some way behind ASX and AIM listed Centamin Egypt in the World Gold Project Development Stakes. Greystar will never catch up before the winning post comes in sight as Centamin has already started mining, and construction at the Sukari project in Egypt will be completed before June. Nevertheless Greystar is a worthy opponent as it has a resource of 15 million ounces of gold at its Angostura project in Colombia; has embarked on a bankable feasibility study and will report on the first phase later this month; and has access to sufficient money to develop a mine.
The recent progress of Greystar is interesting as last October Dave Rovig, its chief executive, was stunned by the swift demise of the junior mining sector. He pulled in his horns and cut back on all promotion to the extent that some commentators were questioning whether Angostura would ever be developed. Asked about that period now he says “you can’t push a noodle.” In other words whatever he said then would have had no impact on the share price, so why waste the time. It did not stop him thinking, however, and early in December he got in touch with International Finance Corporation, the commercial arm of the World Bank, to see if there was any interest in his project. He explains that he had met people from IFC on a number of occasions over the previous four years at events like the Denver Gold Forum, but had never talked deals. This time they certainly talked deals and by 11th January they had one.
There is more to this deal than first meets the eye and it is certainly a feather in the cap of Greystar and its Angostura project. Initially the IFC is going to invest around C$12 million in the company and Dave expects the deal to be completed next week. Angostura is clearly a main part of the attractions, but IFC also wants to inject some funds into Colombian industry and it likes the way Greystar has gone about building relationships with local communities in the north east of the country. IFC will be buying 6.58 units in the company which comprise a new share plus a fraction of a warrant yet to be determined. The price for these units will be the lesser of C$1.83 or the volume weighted average trading price for the preceding 5 days multiplied by 90 per cent. On this basis the IFC is getting a good deal as the share price is now C$2.75, but, in part, the price rise is due to the deal.
The options could also take the amount invested up to US$20 million and investments such as this do not come cheap especially when accompanied by a verbal commitment that IFC would provide debt finance of around US$140 million towards development costs and find the balance from a syndicate of banks. Last year the IFC made new investments worth US$16.2 billion so this commitment is not out of the ordinary, but it does move Greystar up a whole division in the gold project development sector. Ocean Equities, the company’s broker for the AIM listing, reckons that Greystar is currently so undervalued as to be considered completely dislocated from the current market multiples. In defence of this view the brokers point out that the market is currently paying around US$50/oz of gold equivalent in the ground. Greystar is currently being valued at US$3.4/oz for its 16 million gold equivalent ounces, of which approximately a million ounces is silver. Just as a guide Dave Rovig points out that the shares were over C$10 each in 2007 when the resources were a lot less than now, and the feasibility study had not even started.
Greystar has drilled 270,000 metres at Angostura. The latest resource estimate at the turn of the year gave a measured resource of 148.9 million tonnes grading 0.78 g/t for 3.736 million contained ounces of gold, an indicated resource of 182 million tonnes grading 1.34 g/t for 7.8 million ounces, and an inferred resource of 90.8 million tonnes grading 1.11g/t for 3.472 million ounces of contained gold. A scoping study was carried out in May 2007 and this concluded that Angostura could produce 350,000 ounces of gold and a million ounces of silver for ten years at a cash cost as low as US$276/oz. More will be known about this when the first phase of the feasibility study is announced shortly, as it will provide all the technical econometrics needed for a better understanding of the potential mine such as conceptual mine design, operating costs and capital costs. Phase two is due before the end of the year and will provide more detailed mine planning as well as refining the data in Phase one.
The confidence Dave Rovig and his team have in Angostura is implicit in the fact that the project was moved directly from the scoping study to feasibility without wasting time or money on a pre-feasibility study. The pennies are watched carefully, but the company had C$26 million in cash and short term investments as at the end of February so there will be no problem over completing the feasibility. From then it should be onwards and upwards, with funding likely to be sought in the first half of 2010 and production commencing in the first quarter of 2012. The only problem as far as Dave Rovig is concerned is that his company might be taken over by a major before it gets into production. Deposits of this size do not grow on trees and majors need to top up their resources. Shareholders, however, would probably feel that the recession had lifted early. |
