AKG/PMV – Second Time’s a Charm: Asanko Tries Again to Acquire PMI Gold

Due to the close proximity, Asanko believes they will realize $100 million in cost savings by combining Esaase and Obotan (Asanko Gold)

Due to the close proximity, Asanko believes they will realize $100 million in cost savings by combining Esaase and Obotan (source: Asanko Gold)

Sound familiar?  That’s because Asanko Gold (AKG:TSX) and PMI Gold (PMV:TSX) attempted a merger in late 2012 that was mutually terminated in early 2013 after it became apparent they wouldn’t get the supermajority votes necessary to complete the transaction.  Now, after the largest price decline in gold in over a decade and the substantial derisking that management of Asanko has done over the past year, including $150 million financing, Asanko and PMI believe the timing is right.  Under the terms of the arrangement, each PMI shareholder will receive 0.21 shares of Asanko valuing PMI at roughly $0.44 per share representing a 79% premium to the 20-day VWAP.  If the transaction is completed, each company will hold 50% of the combined company.

The companies host neighboring gold development projects in Ghana, West Africa.  Asanko holds the Esaase project which hosts 2.4 million ounces 2P reserves at 1.4g/t gold average grade.  The project is fully funded with $185 million in the treasury and a $150 million project facility from Red Kite.  A feasibility study released in May 2013 shows production of 200,000 ounces annually for an 11 year mine life with $843 per ounce all in costs.  PMI holds the Obotan project which is also slated to produce 200,000 ounces per year over a 10 year mine life.

Both are open-pit projects and Asanko believes they will be able to save over $100 million in development and sustaining capital by combining the two projects.  The options for developing both projects and realizing these synergies include the potential of utilizing flotation at Obotan and trucking concentrate to Esaase for leaching and/or the potential of transferring ore from the Obotan pits to Esaase in combination with a process plant expansion at Esaase.

Peter Breese will remain on as President and CEO (source: Denver Gold Group)

Peter Breese will remain on as President and CEO (source: Denver Gold Group)

Peter Breese, President and CEO of Asanko, said “The combination of the Esaase and Obotan Gold Projects into an integrated mining operation is an overwhelmingly accretive transaction for both Asanko and PMI shareholders due to the inherent synergies that can be captured through co-developing the projects.”

The Asanko Board of Directors will be comprised of seven directors: Peter Breese, Peter Bradford, Gordon Fretwell, Marcel de Groot, Shawn Wallace, Colin Steyn and Michael Price.  Peter Breese will remain the President and CEO of the combined company.  Peter along with Colin Steyn founded and sold LionOre Mining which was sold to Norilsk for $6 billion.  Mr. Breese would become CEO of the integrated Norilsk after the acquisition.

Director, Marcel de Groot is a financing force of his own having helped raise more than $800 million for companies involved with his Pathway Capital venture capital firm (Luna Gold, Lowell Copper, Sandstorm Gold, the list goes on).

The combined company will have a strong balance sheet with over $280 million in cash and $150 million project facility.  Esaase’s capital costs are estimated at $286 million so the combined company will have options for developing Obotan in the mid-term, after Esaase.  Asanko claims they will receive permits for the project “imminently” and plans to release a definitive feasibility study for Esaase in early 2014 which broadly confirms the outcomes of the 2013 feasibility study.

PMI and Asanko have received lockups for 20% and 9.6%, respectively.

Asanko is down roughly 50% year-to-date and is trading at cash value:

AKG Chart
AKG data by YCharts

A joint conference call hosted by Peter Breese and Peter Bradford will be held today at 4:00 pm (EST), 1:00 pm (PST), 9:00 pm (London), Wednesday 5:00 am (Perth) and 8:00 am (Sydney) to discuss this transaction.

Canada Toll-Free: 1-866-228-9189

US: 1-877-941-9205

International: +44-20-8515-2313

Read: Asanko Gold to Acquire PMI to Create an Emerging Mid-Tier Gold Producer

Mining’s Greatest Explorer – Dave Lowell Interview

Odgers Berndtson With special thanks to Odgers Berndston, global leaders in executive search, for supporting this production.

Mining Dave Lowell Arizona

Lowell at his ranch, January 2013 – Photo: Adam Humphreys

Click here to launch the video in Youtube, or scroll to the bottom of this article.

The Atascosa Ranch is walking distance from the US/Mexico border, just outside of Nogales, Arizona. It’s owned by Dave Lowell, an affable 84-year-old man who’s spent the past 75+ years hunting for buried treasure. Today, he’s known as the most successful mining explorationist of the past century, having discovered an unprecedented seventeen ore bodies, including the world’s largest copper mine. Last week, Lowell and his wife, Edith, invited us to Atascosa for lunch. We brought our cameras and sound equipment, and recorded a conversation with one of mining’s greatest outliers of all time.

J. David Lowell was born February 28, 1928, to a modest family, not too far from Atascosa (the ranch belonged to his uncle at the time). Lowell was first exposed to mining at age 7, when his father, a mining engineer, put him to work. When Lowell pursued his college education at Arizona and then Stanford, he concurrently worked at mines and on exploration programs. Not too long after he had completed his degrees, Lowell had become one of the foremost experts on copper deposits.

Lowell is probably best known today for co-authoring the Lowell-Guilbert Model, a guide to large, low-grade porphyry copper deposits published in 1970. Throughout most of his career, Lowell used the model to locate some of the most profitable mineral finds in the history of mining, such as the 1981 discovery of the Escondida deposit in Chile. Containing hundreds of billions of dollars worth of ore, Lowell and his colleagues found it at the cost of a mere $2.5 million.

Escondida Mine, Chile

Escondida at night, the world’s largest copper mine, and a Lowell discovery. Photo: BHP Billiton

Over lunch of elk tacos and Mexican fried beans, Lowell was modest about his success. But he offered a theory as to why major mining companies don’t make discoveries as efficiently as prospectors like Lowell. Major mining companies have a “don’t make mistakes” approach, which “doesn’t fit at all with the profile of the mad scientist who discovers mines,” he said. “When something like one in five hundred good-looking targets will become a mine, a successful explorationist needs permission to be wrong four hundred and ninety-nine times.” Here he paused. “If there’s anything my career says about me, it’s that I’m very good at being wrong.”

Despite being a pro about being wrong, Lowell does admit to limitations. Having “no taste for shareholder relations,” he recalled giving a presentation to investors in 1995 that resulted in the share price of one of his companies falling from $35 to $15 during the time it took him to finish his talk. The shares recovered shortly thereafter.

On the changing impact of technology on mineral exploration over the span of his lifetime, Lowell holds that it’s been “very little.” He believes that “geophysics has been very oversold,” instead favoring “drill holes and geochemistry… The best guide to ore is ore.” Lowell also voiced doubts that technology would be able to revolutionize mineral exploration the way 2D and 3D Seismic has for the oil and gas business, at least in the near future.

The commodities super-cycle is intact, Lowell believes. There’s elasticity in mining companies’ profit margins, he told us, but not in the demand for the underlying commodities they produce. For that reason, large, undeveloped, low grade copper deposits will need to be put into production, sooner than later.

When asked about his favourite jurisdictions for exploration currently, he told us he favors Chile, Peru, New Guinea, Mongolia, Nevada, and some parts of Africa. But he qualified his dispositions by recalling that attractive jurisdictions are constantly changing. “Places like Arizona were very attractive as a place to explore for copper deposits, and now Arizona is about as bad as Venezuela,” he chuckled.

When we moved on to the role luck has played in his career, Lowell avoided answering directly. Instead he responded that “minefinders who make one discovery are much more likely to find another.” His basic philosophy is that of persistence, and it shows — his career is equally productive after retirement age as it was before.

At age eighty-four, Lowell is not slowing down. With financiers Dave De Witt and Marcel De Groot of Pathway Capital (“as efficient, honest and reliable as partners get”), Lowell is developing several projects, including a titanium-iron deposit in Paraguay, which he believes is the largest of its kind in the world. Other active projects are under wraps for now, as to avoid competition. Investors who rode his Arequipa Resources shares from .20 to $30.00 in 1995 will surely be watching Lowell’s upcoming public ventures. An autobiography is also in the works.

It was an honor to spend time with Dave at his ranch, and we’re pleased to share some video, pictures, and sounds of the day. We hope you enjoy the following short film about the greatest outlier and maverick the mining industry has known in recent memory, J. David Lowell.

Odgers Berndtson

With special thanks to Odgers Berndtson, global leaders in executive search, who are working with us to grow their Resources practice. We look forward to introducing them to you over the coming weeks.

 

More: 50 Acre 1: Lowell Profile Backstory (CEO.CA), Lowell Institute For Mineral Resources (University of Arizona), Octogenarian Finds Copper With China As Biggest Customer (Bloomberg), Pathway Capital (Vancouver, Canada)