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AngloGold Ashanti, Saracen Mineral: Farm-In Agreement for Carosue Dam Gold Mine

- By Alberto Abaterusso

The rumor about the sale of Barrick Gold Corp's (ABX) 50% stake in Kalgoorlie may have attracted the interest of gold mining companies in another gold mine approximatley 80.7 miles from the Super Pit: the Carosue Dam North.

The Carosue Dam Gold Mine is located south of Laverton, Western Australia and is currently owned by Saracen Mineral Holdings Limited (SAR.AX).

Source: Wikimedia Commons

Originally, Carosue Dam belonged to Sons of Gwalia Ltd. that went into administration on Aug. 30, 2004, forcing the mining company to sell the mine to St. Barbara Ltd. in March 2005 for 38 million Australian dollars ($28.9 million). In February, Saracen became the owner of the gold mine.

Saracen's Carosue Dam Gold Mine has attracted the interest of AngloGold Ashanti Ltd. (AU) to such an extent that the South African gold mining company, through its subsidiary in Australia, reached a farm-in and joint venture agreement with Saracen for the exploration of the gold mine.

As a farmee, AngloGold Ashanti will invest up to AU$25 million over a six-year period in performing drilling tests and exploration activities in the two tenements of Carosue Dam North gold mine: the Butcher Well and Lake Carey tenements that cover approximately 131.1 square miles at the north end of Saracen's Carosue Dam project.

The following are the key points of the agreement:

  • AngloGold to spend up to AU$25 million over a six-year period exploring Saracen's Butcher Well and Lake Carey tenements, part of Carosue Dam North (excludes Red October and Deep South mines).
  • AngloGold can earn up to 70% off the joint venture by spending:

    • AU$15 million within 48 months from commencement date to earn 51% (of which at least AU$6 million must be applied in respect to the Lake Carey Tenements); and
    • A further AU$10 million within 24 months thereafter to earn 70%

  • AngloGold will be the Manager during the Farm-in Period
  • AngloGold may withdraw from the project and the Agreement at any time during the farm-in period, and before satisfying the first earning requirement
  • Field work (including drilling) will commence following satisfaction of conditions precedent. -(AngloGold Ashanti's PR).

The support from a large gold mining company as AngloGold Ashanti will reduce the time before the first production can commence at Butcher Well and Lake Carey tenements and gets the payback of the capital expenditure. Having already budgeted AU$42 million in exploration activities, Saracen strongly believes in the area's potential.

"The agreement with a company of AngloGold's standing and exploration track record reflects the quality of the Carosue Dam North tenements and supports Saracen's strong belief in the potential of this world class district," Raleigh Finlayson, managing director of Saracen, said."We look forward to the start of the Carosue Dam North exploration program, which will add to the aggressive drilling activity already being undertaken by Saracen as part of its current AU$42 million exploration budget." (AngloGold Ashanti's PR)

At the moment, AngloGold Ashanti is trading at $13.38 per share and gained 88.8% year to date.

The Enterprise Value/EBITDA is 6.33 and the Price/Book (mrq) is 2.08.

Disclosure: I have no positions in any stock mentioned in this article.

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This article first appeared on GuruFocus.