It’s hard to argue that the gold district that’s been, and continues to be, methodically delineated by Conroy Gold and Natural Resources PLC (LON:CGNR) is anything other than very significant, now that two serious players in the mining industry have expressed meaningful interest in a joint venture.
Conroy initially signed a letter of intent with Anglo Asian Mining (LON:AAZ) some months ago and, although the proposed deal was in certain respects slightly unconventional, nonetheless both parties expressed themselves satisfied.
But at some point, Conroy’s ground at Clontibret and the neighbouring Clay Lake and Glenish prospects, also caught the attention of Turkish conglomerate Demir Export.
And, safe in the knowledge that the agreement between Conroy and Anglo Asian was non-binding, Demir Export put together a highly professional and attractive counter-offer.
“The board met three times,” explains Conroy Gold chairman Professor Richard Conroy.
“The new deal was almost immeasurably better in every respect. And we have to do what’s in the best interests of shareholders.”
Accordingly, Demir Export’s attempt to gazump Anglo Asian looks like it will succeed, as commercial terms have been agreed and it’s only the legal niceties that have to be tied up before the deal becomes official.
That there was more money on the table from Demir Export was crucial, says the Professor. But it wasn’t the only factor.
It was also helpful that Demir Export wanted to structure a farm-in deal along conventional mining industry lines, and on generous terms, but without the complexities of the claw-backs that had been mooted under the Anglo Asian deal.
So, in the first couple of phases of the deal, Demir Export is likely to spend around €9mln to take its interest up to 40%. It can then earn another 17.5% if it takes Clontibret along to a construction ready state. At that point Conroy will still hold 42.5%, and depending on the size and scope of the development proposed, may elect to hold up its end all the way into production.
But even if it doesn’t, a mechanism in the deal exists that ensures that Conroy will continue to hold at least a 25% interest at production.
Under the terms of this mechanism, Conroy’s end of the capital expenditure will be provided by Demir Export, which has deep enough pockets to shoulder the whole burden if it so wished, never mind any bank debt.
For a junior miner capitalised at just over £10mln, that’s not a bad fallback to have, and means that there’s now a clear pathway towards both bringing Clontibret on stream and to creating meaningful value uplift for Conroy’s shareholders.
And the key to all this is the potential scale of the district Conroy has under licence. As it stands, the official 517,000 ounce resource at Clontibret isn’t going to set the radar dials of the major mining companies quivering all that much.
But that’s not the right way to look at it, and that’s certainly not the way Demir Export are looking at it.
“They’re looking very much towards the long-term at Clontibret,” says Professor Conroy.
“They’re also looking at Clay Lake and all along the entire system. They’ve really done their homework.”
And what does that homework show?
What many in the industry began to wake up to when Conroy appeared at the PDAC convention last year.
“There’s a realisation that this could be a district-scale trend,” says Professor Conroy.
“It’s a whole new gold district. You’d normally expect to find ten or twelve companies in a district like this. But we’ve got it all.”
Still, the development of a new gold district requires some serious financial heft, and on reflection it’s not clear whether any mid-tier miner would be capable of providing it in a timeframe that’s acceptable to Conroy.
“The mid-tiers and smaller companies don’t necessarily have the financial capacity to take on a whole new gold trend,” says the Professor.
“But Demir Export are so enthusiastic about the project. We’ll be supported in a very thorough exploration programme. They’re really, in many ways, the partner we’ve been looking for.”