In return for more than doubling its share float, a Halifax junior exploration company has gained access to the equivalent of $1-billion worth of Mexican precious metals, according to an independent report.
GoGold Resources Inc. is in the process of amalgamating with privately owned Absolute Gold Holdings Inc. via a reverse takeover.
When the dust settles, Absolute Gold will disappear. Instead, its shareholders will end up with a major stake in GoGold.
GoGold, in return, gets the 100 per cent interest that Absolute holds in a Mexican gold tailings operation.
Thats significant, according to a technical report completed for Absolute and GoGold in accordance with mining industry reporting standards.
The report, prepared by D.R. Duncan & Associates Ltd., found the equivalent of 741,000 measured and indicated gold equivalent ounces in two zones near the town of Parral in Mexicos Chihuahua State.
Whats more, the tests concluded that heap leaching would be a viable option for extracting the precious metals from the tailings sands. Tailings are near the surface and can be processed rather than mined. In heap leaching, cyanide is added to piles of tailings to draw out the minerals.
This should be easy to put into production, GoGold president and chief executive officer Terry Coughlan said in an interview. There is no mining required. Its an earth-moving exercise.
If the deal goes ahead, GoGold also gets $30 million for the GoGold shares now sitting in an Absolute Gold escrow account.
Coughlan said the money will be used to fund more exploration at its flagship 70,000-hectare gold property in Durango, Mexico, located in one of the countrys richest gold and silver belts.
This transaction puts us into a different category, said Coughlan. Well be moving from exploration into development. We will be a small producer. But this will help us become a pretty significant resource development company.
GoGold is also looking for gold in Newfoundland and Labrador.
The Mexico deal comes at a cost. Under the proposed arrangement, GoGolds stock float goes from 61 million to 128 million common shares.
A significant number of shares although not a controlling interest will end up in the hands of Absolutes major shareholders.
Theyre familiar faces for Coughlan, one of the founders of Gammon Gold Inc., once headquartered in Halifax. Gammon is now AuRico Gold Inc., one of the largest gold and silver producers in Mexico.
One of Absolutes major shareholders is Gammon co-founder Brad Langille. Also holding a big Absolute Gold stake is Fred George, president of Gammon from 1997 to 2009.
If the deal goes ahead, United States-based OakRun Precious Metals Fund Ltd. will see its 49 per cent stake in GoGold fall to about 28 per cent.
Trading in GoGolds shares has been halted on the TSXs Venture Exchange since March 30, when the deal with Absolute was announced.
Two-thirds of Absolute shareholders, as well as at least 50 per cent of GoGolds shareholders, have to approve the deal for it to go ahead.