Reunion Gold Corp. [RGD-TSXV] said Monday has agreed to embark on a strategic alliance with Barrick Gold Corp. [ABX-TSX, NYSE] to explore, develop and mine mineral properties in the Guiana Shield of South America.
Under the agreement, the two companies will form a 50:50 alliance that will cover certain mineral projects in Guyana, Suriname, French Guiana and the north and northeast regions of Brazil. Barrick will increase its stake in Reunion to 19.9% from 15%.
Reunion Gold shares advanced on the news, rising 11.8% or $0.02 to 19 cents on volume of 572,449. The shares trade in a 52-week range of 22 cents and$0.105.
Reunion’s asset portfolio consists of six projects, including three in French Guiana and three in Guyana. In French Guiana, Reunion has options to acquire a 75% stake in the Dorlin Project, which contains a historical estimate of 1.6 million ounces of gold. It can also acquire a 100% interest in the 78.2 km2 Boulanger Project which is located 40 km south of Cayenne. In addition it can acquire an 80% stake in the 122 km2 Haute Mana Project.
In Guyana, early stage exploration is underway in the Northwest District, at the Waiamu, Aremu, and Arawini projects, all with artisanal gold production. Waiamu and Aremu are 45 km and 90 km respectively from Guyana Goldfields Inc.’s [GUY-TSX, OTC-GUYFF] Aurora mine.
Under the agreement with Barrick, Reunion will initially contribute to the alliance the Waiamu, the Aremu, the Arawini, and the Oko projects, all of which are located in Guyana. Barrick will initially provide US$4.2 million to fund the initially included projects. This amount represents credit for the historical exploration and money already spent by Reunion. Subsequent funding will be on a 50:50 basis.
Subsequently, as long as the alliance is in effect, if Reunion acquires an interest or an option to acquire an interest in any mineral property in the subject area, it will present the new projects to Barrick.
The major will then have 90 days to elect to include the new project in the alliance. If included, Barrick will fund the main initial costs and expenditures for the project in an amount equal to Reunion’s incurred costs on the project up to a maximum of US$250,000.
Under the agreement, Barrick can at any time designate an included project as a “designated project.” Following such designation, Barrick will sole fund the designated project up until the completion of a feasibility study. Once the feasibility study is complete, Barrick’s stake in the designated project will increase to 70% and Reunion will retain a 30% interest.
If Barrick does not deliver a feasibility study on the designated project, that project returns to the alliance as an included project.
Reunion will manage all exploration projects within the alliance until such projects are defined as designated projects. At that point Barrick will take over the responsibility for project management.
Reunion’s interest in the Dorlin, Haute Mana, and Boulanger Projects, (all located in French Guiana) are initially not included in the alliance.
However, Barrick retains the right of first refusal on these projects, and can in the future define any project, based on certain criteria, as a designated project, and would then, at that time, pay Reunion 50% of all costs incurred by Reunion on such designated project to that date.
Following the delivery of a feasibility study for the designated project, at Reunion’s request, Barrick will fund or arrange capital for Reunion’s share of any debt financing required to develop and construct a mine and related facilities on the designated project that Barrick has chosen to develop. Barrick will receive an additional 5% interest in the designated project for funding or arranging such capital.
Reunion is a company which has enjoyed strong support from major shareholders Dundee Corp. (16.5%) and Barrick Gold. Other investors include Donald Smith Value Fund (6.0%) and Gold 2000 (4%).
Reunion recently said it planned to complete a non-brokered private placement of up to 83.3 million common shares at 18 cents per share, in the hope of raising up to $15 million.
Assuming that the private placement is fully subscribed, Barrick said it will purchase 35.7 million shares for a total value of $5.35 million, raising its interest in Reunion to 15%.