Canadian miner Barrick Gold Corporation is selling its seven Western Kenya gold mining licences to Guernsey-incorporated Shanta Gold in a cash-and-stock transaction worth a total of $14.5 million (Sh1.4 billion).
Toronto-based Barrick holds licences for rights to mine gold over a 1,161 square kilometre area that straddles Kakamega, Kisumu, Siaya and Vihiga counties. The area has gold deposits estimated at 1.1 million ounces, with a current market value of Sh186 billion.
Barrick will take $7 million (Sh700 million) in cash and a 6.4 percent stake or 54.6 million shares of Shanta valued at $7.5 million (Sh753 million). This will see Barrick become the fifth largest shareholder in Shanta.
Shanta has also agreed to pay Barrick a two percent royalty rate, based on actual gold production in the future.
“The West Kenya acquisition is significant for Shanta Gold, creating an East African gold mining champion with realisable growth prospects and high asset quality across three attractive gold projects,” Shanta CEO Eric Zurrin said in a statement.
“Shanta has successfully operated in East Africa for nearly 20 years and this acquisition is a natural extension in terms of geographic footprint, skillset, size and mining method.”
The transaction is expected to be completed mid this year. The deal will require approval from various regulators and government agencies, including the Ministry of Petroleum and Mining and the Competition Authority of Kenya (CAK).
In the year ended December 2018, the Western Kenya project made a pre-tax loss of $5.9 million (Sh592 million). Gross assets in the same period stood at $10.6 million (Sh1 billion).
Shanta says it will inherit certain liabilities of the project, noting that it could pay an additional $4 million (Sh400 million) to settle third party claims.
“Immediately upon completion of the transaction, Shanta’s team will move to site to complete the data handover,” Shanta said.
“Shanta plans to proceed with progressing a scoping study in advance of an infill drilling campaign. Subject to the exploration results, this would likely be followed by a pre-feasibility study and a definitive feasibility study.”
Additional work to delineate the size of the orebody, progress an updated mineral resource estimate and proceed to a construction decision could take up to three years.
The latest transaction marks increased deal-making in local gold operations despite little production.
London-based Goldplat Plc recently said it was ready to sell its Migori gold mine as its bid to raise new funds to run the loss-making operation drags on. The multinational said in its latest trading update that the mining operation of its local subsidiary Kilimapesa Gold (KPG) remains on care and maintenance in the absence of an investment partner to inject in funds.
“We remain committed to our strategy of increasing long-term visibility of earnings in the recovery businesses through key initiatives and finding an investment partner or buyer for Kilimapesa,” the firm said in its trading update for six months to December 2019. It will continue to holding discussions with funding partners to recapitalise “this valuable asset”.
Placing a mine under care and maintenance means that production stops and only a few employees are needed to make sure the site remains in a safe and stable condition. This is usually necessary to ensure that future production can resume quickly and efficiently.
Goldplat said only the processing of artisanal tailings continues and that operating losses are lower than it would have been had it continued with full care and maintenance. The firm reported that operating losses at KPG more than halved to Sh38.8 million (£295,000) in six months to December 2019, down from Sh90.5 million (£686,845) a year earlier.
During the six-month period, the Kenya Revenue Authority gave the firm Sh68.8 million (£523,000) in VAT refunds.
Goldplat’s permits and licenses have not been affected by the decision to halt underground mining. The continued lack of production amid a significant rally in the international price of the precious metal over the past three years has however translated to a lost revenue opportunity for the UK firm.
International gold prices crossed Sh151,346 ($1,500) an ounce for the first time in six years in August last year and have been on a sustained rise. Spot prices per ounce are currently averaging $1,557 (Sh157,000).
Goldplat has, however, benefited from higher gold spot prices through its operations in South Africa and Ghana.
Operating profits in the South African operations grew 3.5 times to Sh342.5 million (£2.6 million) in six months to December last year. That of Ghana recovered from Sh31.8 million (£241,449) operating loss to an operating profit of Sh19.5 million (£148,000) during this period.