July 05, 2010Gryphon's Bid For Shield Mining Lays Bare Its...

July 05, 2010

Gryphon's Bid For Shield Mining Lays Bare Its Ambition To Become A Major Player In West Africa.

By Charles Wyatt / www.minesite.com

Quite a lot of proposed mergers never advance to completion because niggles over value develop between two parties coming from quite different disciplines. Polo Resources and Caledon Resources was a recent example where, even though the two had a close relationship, it proved difficult to put an agreed value on Caledon's coal assets. In that case Polo has all the money and Caledon all the assets. With Gryphon's recommended takeover of Shield Mining it is all rather different. Both have great assets in West Africa. Gryphon's Banfora gold project in Burkina Faso already has an inferred resource of 1.1 million ounces in the inferred category, with plenty more to come, while Shield has the Tijirit project in Mauritania which has many similarities to Red Back Mining's world class Tasiast mine, which is close by.

David Netherway, chief executive of Shield, seemed to put his finger on the reason for the deal when he explained to Minews that Shield had never managed to gain traction with brokers or investors. Shield seemed to get left behind when Gryphon, and peers such as Adamus and Perseus, found that their exploration results in West Africa were at last attracting the attention of Australian investors in recent months, helped, of course, by former PM Kevin Rudd's proposed super tax. At the end of May the company managed to raise A$3.38 million at A15 cents a share, but David reckoned that was not enough to undertake the aggressive drilling programme at Tijirit which the targets there deserved.

Gryphon, on the other hand, has around A$23 million in the kitty so can raise the pace significantly. Shield's shareholders should be delighted as they are going to receive shares in Gryphon on a basis which valued their shares at A27.2 cents at the time the deal was announced last week. This represents a 55.8 per cent premium to the average over the past three months.

Steve Parsons, managing director of Gryphon, is taking a carefully calculated bet on Tijirit proving to be a lookalike for Tasiast and says: " we are well resourced and capable of aggressively exploring the highly prospective greenstone belt adjacent to Tasiast and the other exploration assets owned by Shield including the drill ready copper-gold target at Diaguili and the strong gold anomaly at Toumbou." Both lie within the Saboussirri project which is in the south of Mauritania.

But Shield is no one trick pony, as it also has the highly prospective gravity targets at Akjoukt, which is very close to First Quantums producing Guelb Moghrein copper-gold mine. Mauritania is an emerging gold producing country lying between Mali and the Atlantic. It has a well developed mining code, a transparent licence application process, and a favourable tax regime, but limited infrastructure.

On the other side of Mali lies Burkina Faso, where Gryphon has its Banfora project. It sits in one of the world's most prospective gold provinces, not far from the 4.2 million ounce Tongon mine where Randgold Resources expects to commence exploration in the last quarter of this year, the 11.5 million oz Syama mine which Resolute Mining has just brought back into production after Randgold had to let it go after hitting technical problems and the Morila mine operated by Randgold and AngloGold Ashanti which is approaching the end of its life.

As Minews has pointed out on numerous occasions God knew nothing about country borders when depositing gold in the ground. Banfora's resource is based solely on drilling down to 100 metres and is open along strike and to depth so there is plenty more to come. The only slight downside with Burkina Faso is that the government has started muttering about increased royalty rates on production, but that is par for the course for countries in Africa.

Looking to the future Gryphon is going to be doing step-out and deeper drilling at the Nogbele and Fourkoura deposits. The Banfora project covers 1,200 square kilometres, and only half of this has been explored. There are another five high priority targets which will be drilled as soon as possible. Meanwhile Shield has six robust gold-in-soil anomalies at Tijirit grading up to 1249 parts per billion (ppb) gold, and these have been confirmed by results from trenching which showed 5.49 grammes per tonne gold over six metres and more recently from a drilling intersection of similar width grading 17.63 grammes per tonne. This was just one intersection from an RC drilling programme which started a year ago. The best clearly lies ahead, as Shield has only drilled to 60 metres whereas the best grades at Tasiast lie between 80 and 130 metres depth.

Talking to Messrs Parsons and Netherway one comes to the conclusion that they have formed a mutual admiration society about each other's projects. This is a good start as the directors of Shield hold an 11.4 per cent interest in their own company and have given the bid a unanimous recommendation. David will be joining the board of Gryphon and this is a good move as he is a mining engineer with vast experience, having worked in the past for companies such as Afcan, Ashanti and Semafo. The intention is to build a major gold producer focused on West Africa. The enlarged company will kick off with a strategic land position of 3,600 square kilometres in world class gold regions.

A number of analysts follow Gryphon and it has a good institutional shareholding, so Shield will no longer suffer from lack of liquidity. The glow of courtship may fade a bit after the marriage, but Steve Parsons and David Netherway are determined to make this one work.