Yesterday, Northern Star announced its decision to divest the Mt Olympus Project, comprising most of the Ashburton Project in Western Australia, to Kalamazoo.
While Northern Star shares jumped 4% on the news, Kalamazoo shares were stuck in a trading halt and only resumed trading this morning. At the time of writing, the Kalamazoo share price has rocketed 42% to 69 cents.
Kalamazoo is a gold and base metals explorer. Its focus is on identifying commercial mineral deposits to explore at its Victorian gold projects and Western Australian gold-base metals projects.
What’s the deal?
Kalamazoo has acquired the Ashburton Gold Project, which is located on the southern edge of the Pilbara Craton in Western Australia.
The project produced 350,000 ounces of gold between 1998 and 2004. It currently holds a JORC Code (2012) resource estimate of 20.8 million tonnes at 2.5 grams per tonne gold for a contained 1.65 million ounces.
Under the terms of the agreement, Kalamazoo will pay Northern Star deferred contingent cash consideration of $17.5 million. This consists of:
- $5 million on mining of the first 250,000 tonnes of ore;
- A 2% net smelter royalty (NSR) on the first 250,000 ounces of gold produced, with a 0.75% NSR on any subsequent gold produced from the tenements; and
- The same NSRs on any other metals produced from the tenements.
Kalamazoo views the acquisition as an important addition to its Pilbara gold assets. And in a similar investment strategy to the acquisition of its flagship Castlemaine Gold Project in Victoria, the deal structure enables the company to invest funds directly “into the ground”.
The company believes the project has significant regional greenfields and brownfields exploration potential; a large drilling, geological, geochemical, and geophysical database; and numerous walk-up drilling targets.
The exploration team will be led by Kalamazoo director Paul Adams, who was previously the managing director of Spectrum Metals. Exploration focus will include an immediate review of the exploration datasets, field reconnaissance of identified prospect areas, and target generation.
Commenting on the deal, Kalamazoo chair and chief executive Luke Reinehr said:
“This is a tremendous outcome for our shareholders and an outstanding addition to our prospective portfolio of gold projects in the Pilbara. Kalamazoo is in the unique position of having major assets and tenure in two of the most highly rated gold exploration provinces in the world today – the Victorian Goldfields and the Pilbara.”
Meanwhile, Northern Star executive chair Bill Beament said:
“The Ashburton project no longer fits in Northern Star’s portfolio but still has strong potential on both the exploration and production fronts. The royalty structure also enables Northern Star to retain an exposure to the project.”
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Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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