More matches like PMI and Keegan likely, says Gryphon MD
by:Paul Garvey From:The Australian February 05, 20139:16AM
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THE $US700 million ($670 million) merger of PMI Gold Corp and Canada's Keegan Resources could become a template for the long-awaited consolidation of West Africa?s gold sector, Gryphon Minerals managing director Steve Parsons says.
Speaking to The Australian on the sidelines of the annual Mining Indaba conference in South Africa, Mr Parsons said tough financing conditions meant cash-poor companies with good development assets were increasingly likely to be drawn into mergers with cashed-up companies looking to expand.
The recently announced tie-up of PMI and Keegan will see PMI’s promising but undeveloped Obotan mine in Ghana combine with Keegan’s $US200 million cash position, allowing for the rapid development of Obotan. The enlarged group then intends to develop Keegan’s less advanced Esaase gold project – also in Ghana – down the track.
Mr Parsons said there was increasing talk in the investment community that major funds wanted to see greater consolidation among the single-project companies at the smaller end of the gold mining sector. The PMI-Keegan merger, he said, was indicative of the sort of deals likely to be done.
. . . “I personally think you will see M&A,” he said.
He named Perth-based miners Perseus Mining and Resolute Mining – both of which have operating mines in West Africa – as two companies likely to be hunting for acquisitions, while companies such as Gryphon, Papillon Resources and Azumah Resources were likely to be targeted given their upcoming capital needs at their gold development projects in the region.
Mr Parsons said Gryphon’s progress at its flagship Banfora project in Burkina Faso coupled with its weak share price – its stock has fallen from $1.35 a year ago to around 51c at present – and its looming funding needs (Banfora will cost over $200 million to build) meant the company was likely to be on the radar of several predators.
“The more and more the project gets de-risked, the more and more you become a target,” he said.
“Our best form of defence at the moment, with a weak share price, is about getting as much news-flow out as possible.”
Gryphon last week released the details of its bankable feasibility study for Banfora, spelling out plans for a 151,000 ounce per annum gold mine.
The company’s focus has now turned to securing funding, with investors having sold down Gryphon in the past year in anticipation of an equity raising.
Mr Parsons said that despite financing conditions being tough, the company had already received strong interest from banks and other institutions interested in helping to finance Banfora’s construction.
He said financial institutions had indicated a willingness to lend up to 80 per cent of the project’s capital expenditure cost, with Gryphon looking at how best to balance the dilution that would come with an equity raising with the hedging commitments that would come with a large debt financing.
The recent completion of the seventh new gold mine in Burkina Faso in recent years meant Gryphon was confident it could deliver Banfora without a major budget overrun, Mr Parsons said.
Toronto-listed High River Gold Mines recently completed construction of its Bissa gold mine in Burkina Faso for $US250 million, a mine that is slightly larger and more complex than the planned Banfora development.
Gryphon is currently sitting on $83 million in cash and liquid assets, including a 7 per cent stake in Mali gold explorer Papillon Resources.
Mr Parsons said Gryphon was still weighing up what to do with its Papillon interest, the sale of which could help reduce the company’s eventual equity raising requirements.
Mr Parsons’ thoughts on the likelihood of increased consolidation among the West African gold plays comes just a day after Resolute managing director Peter Sullivan told The Australian his company had beefed up its in-house acquisitions team in anticipation of increased M&A activity.
Paul Garvey attended Indaba as a guest of Gryphon Minerals
GRY Price at posting:
48.0¢ Sentiment: Hold Disclosure: Held
