Cash and a crack team: Why Riverstone chose to merge with Blue Gold

Riverstone Resources and Blue Gold Mining announce a merger that would bring former Fronteer Gold guys aboard Riverstone's Karma project.

Author: Kip Keen Posted: Friday , 19 Oct 2012

HALIFAX, NS (MINEWEB) -

If you only looked at the deal from the point of view of projects, you would scratch your head.

On Thursday Riverstone Resourcesand Blue Gold Mining announced plans to merge, with the latter junior ending up with about 30 percent of the combined company. The head scratcher would be that Blue Gold holds rights to a very early-stage copper-gold prospect in B.C., while Riverstone owns a relatively advanced stage, mulitimillion-ounce gold project - Karma - in gold-hot Burkina Faso.

But then neither side was talking about Blue Gold's properties as an asset on Thursday - only its people and cash.

In the all-share merger Riverstone, which is quickly running out of cash and would otherwise be in the market for a financing, is getting a $5 million loan from Blue Gold and then a post-merger balance sheet that grows to C$18 million given Blue Gold's cash-rich billfold.
And along with the cash comes, among others, Mark O'Dea, the former president and CEO of Fronteer Gold, which Newmont took over for $2.3 billion a year ago.

That's what Riverstone was chiefly talking about.

Riverstone might, of course, have done a financing to raise cash instead, and it did consider it, said Riverstone President and CEO Dwayne Melrose, who has managed exploration programs on well-known gold mines such as Kumtor in the Kyrgyz Republic. "We had an opportunity at a lower price than our VWAP," Melrose told Mineweb, referring to Riverstone's volume weighted average shareprice.

Which is where the deal begins to make real sense. It could have got scorched on financing markets, and diluted. Or it could still dilute in a merger with Blue Gold but in the process also bring on a crack junior mining team. Its financial advisors, including Capital West and Cormark Securities, agreed with the latter scenario, Riverstone stated.

"The key thing here is we have the people to take Karma to production," Melrose said of the combined Blue Gold-Riverstone teams.

The Karma project is Riverstone's chief asset with in-pit modelled resources of 1.9 million ounces @ 1.1 g/t gold, indicated and 500,00-ounces @ 1 g/t Au inferred.

Melrose is confident the resources will grow, and that Riverstone will make other discoveries in Burkina Faso, given his experience at other major gold deposits. That was the reason he joined Riverstone a year ago, he said, after doing his own due diligence on the project. As Melrose put it, juxtaposing Karma with the mines at which he has worked: "When you see that every day you learn what makes a really big deposit."