On the last day of 2009, a company called Pershimco (PRO.v) published this PR that announced to the world it had a letter of intent to buy 85% of the Minera Cerro Quema (MCQ) gold mining company in Panama. This MCQ owns the same-named Cerro Quema mine that has 451,000 oz Au as a measured and indicated resource and the economics look pretty robust, too (
you mineheads can check out the presentation at the BHV.v site). According to the literature and my Casio, cash cost per ounce would be in the $300 to $350 range so even if that's optimistic we're still looking at a small mine that, at today's gold prices, will be coining it in if it runs the 50,000 oz per annum output expected of it.
So what's this got to do with B2Gold (BTO.to)? Well, at the moment MCQ is owned by a company called Bellhaven (BHV.v), an explorer with plenty of assets in Panama but not much in the way of cash. What BHV wants to do is sell 85% of MCQ to PRO and then freeride its way on the other 15%, which would be around 7,500/oz gold per year. But Bellhaven's problem is that it bought MCQ from Central Sun (now owned by BTO.to) on a
"little bit up front and bigger bit paid later" deal, as outlined in its annual report (Aug '09)
17. SUBSEQUENT EVENT
Subsequent to April 30, 2009, the Company acquired a 60% interest in the Cerro Quema property through the acquisition of the shares of Minera Cerro Quema S.A. purchased from B2 Gold. As a result, the Company now holds a 100-per-cent interest in Cerro Quema through the ownership of all of the shares of Minera Cerro Quema S.A. As consideration for the 60-per-cent interest in Cerro Quema, the Company paid US$200,000 and issued a non-interest bearing promissory note with a principal amount of US$1,950,000 (CAD$2,360,475) due December 1, 2009, such note being collateralized by a pledge of the shares of Minera Cerro Quema S.A. purchased from B2 Gold. At the option of B2 Gold, the note can otherwise be satisfied by the payment of US$950,000 (CAD$1,149,975) and the assignment to B2 Gold of a 5-per-cent carried interest in the Cerro Quema property. The payments detailed herein are in addition to the US$4-million previously paid by the Company pursuant to the original purchase agreement to acquire the 60-per-cent interest in Cerro Quema.
What all that little lot means is that if BHV doesn't pay the balance to BTO.to on time, it will lose the 60% share of the mine it bought from them originally. And the real problem for BHV is that the promissory note is due paid January 31st 2010...this month.
So, it looks like BHV has been shopping around, trying to find a company that can stump up the cash needed to bail them out, get their $1.2m out in cash and keep the asset on their books...well, 15% is better than nothing, right? In fact, BHV has already tried to do this with another company, Yukon Star (YK.to) as explained in the recent MDA:
Under the MOU, Yukon Gold had a 60 day due diligence period, during which it was to make incremental non-refundable payments to the Company totaling US$400,000 (US$75,000 received), which monies were to be applied to the purchase price provided that closing of the transaction occurred on or before November 12, 2009.
However, subsequent to October 31, 2009 and subsequent to the 60-day due diligence period, the MOU was terminated by the Company.During the current period, the Company continued the care and maintenance of the Cerro Quema Gold Project,completed an extension of the Share Purchase Agreement with B2Gold and is currently seeking to secure adequatefunding in order to exercise the Share Purchase Options and advance the project to production.
And by the way, there's a whole lot of other guff on page 2 of the Bellhaven MDA, if anyone out there wants to follow up and do their own DD. So anyway, BHV and PRO have signed a letter of intent (
one of those famously shaky documents) and now PRO.v is charged with raising $18.5m to get the deal done. But once you look at the company structure of PRO, you have to wonder whather they'll be able to raise that kind of moolah in just six weeks (
or maybe they only have 4, what with that note being due soon). According to its latest filings, PRO.v has total assets of 9.5m , just $90k cash in the bank and the working cap evolution looks pretty sad (
just one chart of many I could pin up here):
It seems to this humble corner of cyberspace that BHV is trying to throw a Hail Mary Pass with this deal, because if it doesn't come off B2Gold gets their 60% share of the mine back. at no charge. And what with Panama's new government suddenly becoming rather mining friendly, (
we went into that angle on another story in IKN36, published this weekend) BTO may just fancy a crack at a small but solid looking project in their specialty region. I mean, this is the same BTO that totally outplayed Linear Gold (LRR.to) for the purchase of Central Sun and the same BTO that has a really sharp mining laywer on the BoD. Once BTO gets its 60%, it would have to stump up $2.2m or so to buy out the 40% partner (
a private Panama finance company that would surely do the deal...they're not miners and would likely want $$$, not a property asset) and then maybe $15m to get the mine started. Nothing too difficult for a company the size and experience of BTO.
So to cut a long story short (I've already done this as quickly as possible, and there's another 10,000 words to write to get the details down...but if you care enough you'll find out for yourself) from this point there seems to be three possible courses that the MCQ story might take:
1) PRO.v does actually raise the cash and gets its mine.
2) PRO.v doesn't raise the cash but BTO gives BHV another prolongation on the deal (it recently gave BHV an extra month...just one extra month).
3) BTO calls in the note, BHV can't pay and loses its 60% of MCQ. The scenario above kicks into play.
Right now, I'd bet five bucks on the three horse. DYODD, dude.
My thanks to reader and IM pal 'BF', who acted as sounding board and came up with some smart suggestions on this one.
