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Message: Gold miners still able to raise capital/is Red Back on the prowl?

Gold miners still able to raise capital/is Red Back on the prowl?

posted on Jan 26, 2009 01:20AM


http://www.mineweb.com/mineweb/view/...

Gold miners still able to raise capital from the markets

Another top rated gold stock uses the stock market for the old fashioned function of raising capital, but is Red Back on the prowl?

Author: Barry Sergeant
Posted: Friday , 23 Jan 2009

JOHANNESBURG -

Red Back, a top performing gold stock, on Friday announced a CAD 150m bought deal, placing 20m shares at CAD 7.50 each, with an over-allotment of 2m shares potentially available at the same price. The financing, for "general corporate purposes", once again underscores the ability of top rated gold stocks to raise capital with relative ease amid equity and credit markets that remain severely bombed out, and paralysed, respectively.

Red Back, a global Tier II gold name, announced on 21 November 2008 that it had raised CAD 60m, upsized from CAD 40m "in response to strong investor demand". Red Back, associated with the Lundin group, has been a relatively quiet gold stock in the public domain. Bought equity deals in the global gold sector have also been recently completed by, among others, Kinross, Harmony, Agnico-Eagle, and Centamin Egypt.

While Kinross two months ago splashed out USD 250m on a 6m ounce gold deposit in Chile, and raised a minimum USD 361m in fresh equity this week, Red Back's recent equity raisings may be connected with potential corporate activity. Red Back holds interests in and operates gold mines at Chirano (Ghana) and Tasiast (Mauritania), and could be producing 500,000 ounces of gold a year by 2012, nearly doubling 2008 production, if its own projections unfold as planned.

Red Back is anticipating 2009 production of 400,000 ounces at USD 385 an ounce, up from 260,000 ounces in 2008. While both Red Back mines appear to be situated in gold provinces that could yield up further deposits, Red Back may also move further up the production ladder on the back of corporate activity.

Red Back holds a minority stake in Mineral Deposits, which also has interests in Africa. Where Red Back currently holds 6.2m ounces of gold in the resource category, and 4.1m ounces in the reserve category, Mineral Deposits holds a 3.5m ounce gold resource and a 1.4m ounce gold reserve at its Sabodala Project, in Senegal, which is due to produce gold any day now. Mineral Deposits also holds a world class, but unfunded, mineral sands project.

Where Red Back currently generates net cash from low-cost gold mining, and holds substantial net cash, Mineral Deposits currently holds net debt, and is only now on the brink of producing operating profits, of which good portions will go towards debt reduction. While the Sabodala project remains fully financed, it has entailed the raising of debt, and also the raising of hedges, where there was recent restructuring.

The construction phase of the Sabodala Gold Project is about complete, with full commissioning underway. The target for 2009 is to produce around 170,000 ounces of gold at a cost of around USD 400 an ounce. The Macquarie bank project finance facility (part of the overall financing package) requires hedging to cover portions of production for the first four years of production.

Immediately adjacent to Sabodala, Canadian junior Oromin has delineated a 1.4m ounce initial resource at 1.73 grams per ton, allowing a regional gold story to start emerging. Mineral Deposits is seen as holding first mover advantage, with excess power, water and infrastructure, and a mill configuration which can expand from 2m to 3m tons a year with only a modest capital outlay.

In taking the Sabodala story further, Mineral Deposits recently signed a new joint venture with Axmin, a Canadian exploration company, covering three exploration permits within 30km of the Sabodala gold plant. Red Back carries a significantly higher market value than Mineral Deposits, which, in turn, carries a significantly higher market value than both Oromin and Axmin.

Investor appetite for gold stocks could enable Red Back to consolidate Mineral Deposits, Oromin and Axmin, but it could be eyeing other targets, such as Moto Goldmines, which this week finally cleared the mining contract "revisitation" in the Democratic Republic of the Congo. This is risky ground, even by African standards, but Moto Goldmines currently sits on a resource of around 20m ounces of gold.

GOLD TIER II

Stock

From

From

Value



price

high*

low*

USD bn

Zhongjin

CNY 36.35

-70.3%

59.4%

1.868

Iamgold

USD 6.60

-32.1%

197.3%

1.951

Simmer & Jack

ZAR 1.64

-74.1%

11.6%

0.169

Yamana

USD 7.32

-63.3%

121.2%

5.369

High River

CAD 0.10

-97.1%

150.0%

0.047

Eldorado

USD 7.17

-23.2%

201.3%

2.632

Agnico-Eagle

USD 54.54

-34.6%

161.3%

8.440

Centerra

CAD 4.36

-72.9%

384.4%

0.755

Randgold Resources

USD 41.63

-26.0%

86.8%

3.185

Shandong

CNY 45.95

-61.2%

74.1%

2.338

Peter Hambro

GBP 4.05

-73.7%

159.6%

0.449

Hecla Mining

USD 2.40

-81.7%

142.4%

0.431

Golden Star

USD 1.20

-72.2%

199.9%

0.227

Franco-Nevada

CAD 23.10

-7.5%

98.8%

1.855

Fresnillo

GBP 2.76

-52.0%

196.8%

2.701

JSC Polymetal

USD 4.72

-52.1%

372.0%

1.487

Red Back

CAD 7.45

-19.5%

160.5%

1.228

New Gold

CAD 1.90

-80.5%

102.1%

0.324

Northgate

CAD 1.43

-59.0%

113.4%

0.293

Tier II averages/total

-55.4%

157.5%

35.746

Weighted averages

-52.4%

137.0%



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