West Kirkland CEO talks about Hasbrouck, the ex-ANV property
West Kirkland CEO talks Hasbrouck, Three Hills deal
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VANCOUVER — Roughly nine months ago it became apparent to president and CEO Mike Jones and his team at explorer West Kirkland Mining (TSXV: WKM, US-OTC: WKLPF) that the company needed to reassess its strategic objectives and pinpoint the types of assets that were attracting investment dollars in the current market. Falling gold prices had put West Kirkland's advanced-stage TUG gold deposit — located along the Long Canyon trend on the Nevada-Utah border — on hold, which kick-started the hunt for a development-stage asset that could benefit from the company’s propensity for institutional fundraising and project engineering.
“We looked at what was financeable in the market, and determined exploration-stage projects were just not that attractive,” Jones explains during an interview, which put West Kirkland at a disadvantage since much of its land holdings in Long Canyon are relatively greenfield properties.
“In terms of opportunities we thought that there were going to be a lot of companies under stress because of that lack of financing, and there would subsequently be some pretty good technical projects that were getting no attention in the market. So the final thing we looked for was a distressed seller that had a very good asset that wasn't a high priority,” he continues...
West Kirkland reviewed over 250 projects globally during its search, with an eye on assets with quality engineering and an internal rate of return (IRR) greater than 22% at US$1,000 per oz. gold price. Jones says the criteria "culled around 90%" of the available projects, and the company ended up with a short-list that had Allied Nevada's (TSX: ANV, NYSE-MKT: ANV) Hasbrouck and Three Hills properties right at the top.
The other criteria Jones mentions is a pragmatic one: Just how much capital could West Kirkland raise in current markets with a dwindling equity valuation? The company wagered it would be tapped out at around US$50 million, though Hasbrouck and Three Hills would end up costing significantly less.
“To my knowledge Hasbrouck and Three Hills were not assets that were actually 'on the market,' when we inquired about a deal” Jones adds. “We concluded the negotiations right at the bottom of the gold price, so I guess our crystal ball was working over time. But I think it's a business strategy that's quite sound: Don't let the market tell you what to do. Take your founding principles and stick to your guns. This is a classic example of a great acquisition made at the right time since we had a strong fundamental analysis in place.”
The company agreed to buy the sister gold deposits in a staged deal that will cost US$30 million — with West Kirkland picking up 75% for US$20 million. After 30 months there is what Jones labels a "soft shotgun" clause where Allied Nevada can either opt to sell the remaining 25% for US$10 million or form a 75-25 joint venture.
And West Kirkland's investors responded to Jones' message. The company ended up raising $29.2 million in its first tranche of financings, wherein it issued roughly 195 million units at a price of 15¢ per unit through combined prospectus and non-brokered offerings. The raise gives West Kirkland the capital to cover the US$19.5 million acquisition payment, as well as move forward with further engineering work at Hasbrouck and Three Hills.
The projects are twin low-sulfidation, epithermal gold-silver deposits that lie along the south end of the San Antonio mountains near Tonopah, Nevada. Each property has seen a significant amount of exploration and engineering work dating back to 1975. Between 2010 and 2011 Allied Nevada completed a comprehensive program at the sites that culminated in a PEA on an open-pit, heap-leach operation dated April 2012.