Sarama Resources (SWA.V) has announced it signed a deal with Acacia Mining (LON:ACA) (previously: African Barrick Gold) whereby Acacia can earn a 70% stake in the South Houndé project through completing earn-in milestones over a 4 year period.
Acacia can earn a 70% interest in the project by completing a $1M cash payment and $14M in exploration expenditures. This is actually a pretty bad deal as South Houndé isn’t an early-stage exploration property. The current resource estimate contains 1.5 million ounces of gold, and if one would assume the $14M in exploration expenditures could double this amount, Acacia Mining will effectively have paid just $7.15 per ounce in the ground which is very low. This also means that Sarama’s 30% stake of a 3Moz project would contain just 900,000 ounces of gold which is less than the current attributable resource estimate.
In order for the deal to be accretive for Sarama, a total resource estimate of 4.5 million ounces of gold will be needed, as otherwise this deal doesn’t make any sense at all. Sarama has burnt through a lot of cash in the past 12-18 months (pretending the mining sector wasn’t in a big crisis as no substantial exploration budgets were cut) and this deal makes it look like it was with its back against the wall. On the positive side, this is a good deal for Acacia though, as the price to gain access to a decent project in a very prolific exploration region is quite low.
> Click here to read the press release
Disclosure: The author holds a long position in all stocks mentioned in this article. Please see our disclaimer for current positions.
