Mining trucks (Image: Semafo)

The team at Semafo (SMF.T) has been busy the last couple days issuing two separate news releases. An acquisition offer has been made to Australian listed Orbis Gold (OBS:ASX) for between 62-65 cents (Australian) per share.  The second news release was an operational update on Q3 results and production guidance.

The market was impressed with Semafo shares trading up 3.7% today.

Orbis takeover

Semafo issued a non binding proposal to Orbis shareholders this morning to acquire 100% percent of the company. The cash offer is valued at $154.9 million (249.9 million shares * .$0.62). The offer from Semafo represents a 68-76% premium over Orbis’s 30 day volume weighted average price (VWAP) of $0.37 per share.

Semafo is after the Natouguo Gold project in Burkina Faso which looks impressive with ~2 million ounces of 3.4 grams per tonne gold. Natougou is the 4th highest ranked open pit  project by grade at 3.4 g/t which is considerably higher than median grade of 1.4 grams per tonne for West African gold projects. A scoping study released this morning on the Natougou project shows robust economics with an internal rate of return (IRR) of 100% and a payback period of only 8 months using a gold price of $1300 per ounce.

Orbis management has responded to the unsolicited takeover bid in a letter to shareholders advising shareholders to take no action.

Operational update

The Mana Mine produced 64,700 ounces at a grade of 2.91 g/t per tonne in the quarter. The high grade material brings the total cash cost per ounce at a projected $550-$565 for the quarter.

The performance of the recently ramped up Siou and Fofina high grade deposits have management increasing production guidance 9% to a level of 230,000-235,000 ounces for the year.

Semafo has a strong balance sheet of $112 million in cash and cash equivalents and no long term debt at the end of September.

It will be interesting to see if Semafo can close the acquisition or if it will be declined by Orbis shareholders. As gold producers deplete reserves they will need to make acquisitions to replace mined ounces and for future growth.

Semafo shows what producers will be looking for in possible targets:

  • multi-million ounce deposits (size)
  • grade
  • robust economics

Symbol: SMF.T

Share price: $4.15

Shares outstanding: 277.45M

Market cap: ~$1.2 B

Read: SEMAFO Announces Strong Q3 Production Results Raises 2014 Production Guidance

SEMAFO: Proposal to Acquire Orbis Gold

I have no position in any of the stocks mentioned. This is not investment advice. As always please do your own due diligence.