MarketOpen Radar: OreCorp (ASX:ORR) offers for Nyanzaga nuggetsDecember 1, 2023
Ready for production from an extensive, high-grade Tanzanian gold resource, OreCorp is heading for a January vote on its future and appears ready to be absorbed into a major – but which one is an enduring question?
An OreCorp takeover becomes complicated with the entry of a significant new player.
How have OreCorp and Nyanzaga blipped the radar?
Holding a large-scale and well-advanced Tanzanian gold project, OreCorp and the Nyanzaga gold project are ready for development.
The vote on a takeover bid from North American major Silvercorp (TSX, NYSE:SVM) was imminent – but has now been delayed after Perseus Mining (ASX:PRU) bought in with a large stake and intentions to block the deal.
OreCorp unanimously recommended shareholders vote in favour of the acquisition early in the year. Silvercorp surprisingly upped its deal by $20 million to make it a $260 million bid at a 12% premium on the last closing, but Perseus has added complications.
Perseus claimed a 15% stake and upped it, now holding 19.9% of OreCorp to block a bid requiring 75% approval and without plans to make a competing offer.
Enter the possibility of Barrick Gold, owning two Tanzanian operations (one down the road from Nyanzaga) with a combined output of 400,000-500,000 ounces at all-in-sustaining-costs averaging about US$1250/oz, well-established relationships both with business and a Tanzanian government holding a 16% free-carried interest in an OreCorp subsidiary.
But Perseus share many of the same virtues, and on paper at least, it makes little sense to sit alongside Barrick as a significant stakeholder.
What do OreCorp do?
OreCorp has been on the ASX since 2011, listing at 21c and now trading at 49c. It once approached the one-dollar mark before demerging its Western Australian gold assets into Solstice Minerals (ASX:SLS) to put complete focus on Nyanzaga. Standing well-funded, debt-free, and ready for development, it has now entered the courtship phase. It is receiving tokens of favour from international miners, with Tanzania’s first major gold mine in over 15 years ready on a platter.
Why has OreCorp’s share price ascended?
An offer from a multinational will tend to do that to a share price, and OreCorp’s has risen to the tune of over 35 per cent over the last six months and will look to be producing into a robust gold market which has continued to consolidate a position over the US$2000 per ounce benchmark.
What is the potential of the Nyanzaga project?
The potential is largely already realised, holding a JORC 2012 compliant high-grade Mineral Resource Estimate of 23.7Mt @ 4.0g/t gold for 3.07Moz using a 1.5g/t lower cut-off and a Maiden Probable Ore Reserve of 40.08 Mt @ 2.02 g/t gold for 2.60 Moz.
The Definitive Feasibility Study showed a high-margin asset with a low all-in sustaining cost of US$954/oz and a short post-tax payback of 3.7 years – long story short, a sound-producing gold mine with a potential 15-year mine life.
What are Nyanzaga’s complications?
While only 8% of the production target, there is little confidence in Inferred Resources and no certainty further exploration will improve it.
Other exploration prospects exist within the 23.4 square kilometre project, and deposits remain open. Still, the exploration upside appears undetermined mainly, and another potential buyer might want to see more upside before signing in.
And there is the matter of location. While it is one of the most politically stable African countries and has never experienced any major internal strife since gaining independence in 1961, there has been contention between miners and within.
Export bans in 2017 began costing Acacia Mining (majority owned by Barrick) more than one million daily at two mines. While 2019 reforms made it easier for foreign investors, a 2020 dispute between Tanzania and three mining companies led to international arbitration.
The industry has welcomed Tanzania’s new president, but it came in after the elected president died after a bitter and disputed electoral contest.
And while commodity prices are strong, the gold exploration and development market is depressed, with concerns over budget overruns and underperforming production from new developments.
There is also the question of who will own it and their relationship with Tanzanian officials and other stakeholders, with China-focused Silvercorp unused to the unique nature of African mining.
What are Nyanzaga’s advantages?
The proof is in the pudding, with ore reserves ready for production and experienced African miners looking to buy in on top of significant interest from other financiers aiming to minimise dilution.
A production profile of 10 years at 242 kmz a year looks excellent on paper. Barrick has proven profitability down the road at its Bulyanhulu operations and across a currently flourishing Tanzanian gold sector believed to hold numerous more undiscovered deposits.
Perseus has also proven its capabilities in producing African gold, and the company offers a significant stakeholder already offering an experienced set of hands – depending on how the January vote plays out.
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