takeover bid?, page-25

Loki,

Fair enough, there are great opportunities across the board at the moment.

In retrospect this takeover was always on the cards... Carrick told me in 2008 their intention was to sell eventually.

I've actually had recent email correspondence with him and I'm the only shareholder who's expressed their dissatisfaction apparently. He sees B2Gold adding considerable exploration upside at Masbate, which isn't CGX expertise.

Here's a minesite article from last week if you haven't seen it, from the B2Gold perspective:

http://minesite.com/news/the-b2gold-cga-merger-is-a-win-win-deal-says-clive-johnson

Clive Johnson, President and Chief Executive of B2Gold, is well known among Canadian miners for being at the helm of Bema Gold for 30 years before the C$3.5 billion takeover of Bema by Kinross in 2007.

Clive Johnson
Clive’s controversial comments this year at the Denver Gold Show generated quite a buzz when he addressed the crowd to shed light on the much pondered lack of mergers and acquisitions in the gold industry.

With the depressed market conditions and the recent explosion of new companies, logic would suggest many of the juniors would be hard pressed to find project financing and many of the majors would be out shopping. But despite the conditions, there have been relatively few acquisitions.

Speaking to Minesite, Clive elaborates: “We should be having a lot of mergers and acquisitions in mining right now because there’s just not enough management and people with capabilities to run all of these projects with these new discoveries that they’ve created.”

And in fact, Clive and his team have been actively scouring the junior space but have come up against a rather frustrating wall; entrenched management. “Particularly in the junior space of our industry”, explains Clive, “there are guys that are frankly desperate to hold onto their jobs and not really acting in the best interests of their shareholders.”

While the B2Gold team have faced a number of frustrations, there’s always an exception to the rule and for Clive it was CGA Mining. “We had a willing seller and those guys are very professional”, says Clive referring to Mark Savage, Chairman of CGA, and his team in Australia. The deal was set into motion last April at the Zurich Gold Show where CGA approached Clive with the idea of a merger.

Right from the start, “it was a real meeting of the minds”, explains Clive. “They care about their legacy and they care about their people in the Philippines. They have a very similar corporate culture to us. They didn’t just want the highest bidder to take them over for cash, they’re interested in being shareholders in a growth company and we really hit it off. Maybe we’ll do it again in 5 years, they’re talking about Africa.”

The deal which materialized is a C$1.1 billion all-stock offer for CGA Mining, with the prize the company’s Masbate gold project in the Philippines. The deal offers shareholders of CGA Mining 0.74 B2Gold shares for each share of CGA which represents a 26 per cent premium to CGA’s closing price as of September 17th and will leave shareholders of B2Gold holding 62 per cent of the combined company.

If shares in a growth company was the aim of Mark and the CGA team, they certainly picked the right horse. B2Gold is the fastest growing gold producer in the world right now and has no plans of slowing down. In 2013, management at B2 expect to deliver 108 per cent growth in production followed by roughly 82 per cent growth over the following three years. So far this year, Clive says, “this is the 11th quarter in a row where we have beaten our own projections for production and costs.”

What’s more, all that production logically translates to excellent, and rapidly growing cash flow, putting the company on excellent footing in all of their endeavours. “The great thing about it is that we haven’t done equity in two and a half years. When the deal closes with CGA, we’ll have about C$180 million in cash, we’ll generate C$150 million this year, and next year we should generate about C$300 million in cash from our operations”, said Clive.

The natural question then becomes: where will the B2Gold team put all that capital? One place of interest for those who have been following the CGA story is the Masbate gold project itself. Masbate has been in production for roughly two years and, excluding a hiccup with a SAG mill which impeded production last year, has reached a steady state at around 50,000 ounces per quarter. The de-risked Masbate project was extremely attractive to Clive because it will immediately add production to the B2Gold profile while providing considerable blue sky for expansion.

Clive explains the draw of Masbate: “It’s built and it’s built well and we think it’s a good project. Maybe over time we can expand it and it will be interesting to turn our exploration team loose there. CGA will be the first to tell you that they were not an exploration-focused company and they are looking forward to becoming shareholders of B2Gold because they believe in the exploration upside of the project as well.”

While exploration provides the blue sky in the distance to achieve the projected production growth, B2Gold needs something a little more concrete to rely on. Enter some very exciting development projects.

Late last year, B2Gold purchased the Otjukoto Project in Namibia through its takeover of Auryx Gold. In a very short time, Clive states that the company has made remarkable progress: “We have about 1.3 million ounces in the measured and indicated categories which are about to become a reserve. We actually got our environmental impact assessment approved by the government ahead of schedule and we’re looking for the final mining licence before the end of the year.”

What’s more, Clive has found Namibia in general, and Otjukoto in particular, to be very inviting.

“Namibia, we think, is the best country to be in today in Africa. Our project is in the middle of the desert but it is three kilometres from the highway. There are two towns about 45 minutes away which is close enough to support the mine but far enough away to not have any environmental impacts at all. It’s probably the least environmentally impactful area where we’ve built a mine in history.”

Additionally, while a water source could have been problematic in the middle of a desert, the technical team at Otjukoto have discovered more water than they could possibly use by drilling the aquifer below.

While the final feasibility study is pending, the plan at Otjukoto is to begin production at a rate of 120,000 ounces a year, after spending between C$200 million and C$250 million in CAPEX, beginning in 2014. The government has shown a high level of support for the project and Clive reports that the government is “blown away right now by how fast we do things - we do them very well but we do them very quickly.”

From there, the plan is to target growth at the project and, right from the starting line, the mill will be designed to accommodate expansion so the company "crank up the production quickly”, if exploration is successful.

B2Gold is also expanding its operations in Nicaragua. “We’ve actually hit good discoveries at both mines", says Clive, "and we think we can increase production in the near term at La Libertad.” In addition, a number of joint ventures, including a particularly interesting one with Anglogold Ashanti in Colombia, could provide significant new production over the medium term.

The story at B2Gold is one of rapid and sustained production growth in the medium term combined with a bright future in exploration. For shareholders of CGA Mining, soon to be in the B2Gold fold, that’s good news.

Clive points to the deals B2Gold has executed in the past to predict just how the scenario should work out for investors in CGA: “We’ve done a couple of deals; we did one in Nicaragua where, in a friendly deal, we took over Central Sun which was a very good deal for their shareholders. Then we took over Auryx Gold and that was great for their shareholders and I think this is going to be great for both sets of shareholders in the new B2Gold!”