Hummingbird Resources (HUM) has offloaded the development of its Dugbe gold project in Liberia to a company part-owned by chief executive Dan Betts and two other directors.
ARX Resources, a British Virgin Islands-registered company, will earn a 49 per cent stake by completing a definitive feasibility study for the project in the next two years and spending $10m (£8m) on exploration. Mr Betts and directors Ernie Nutter and Thomas Hill own 39 per cent of ARX.
Mr Betts said the deal was the best option available for Hummingbird shareholders because it would get Dugbe moving. “Not only does [Hummingbird] have zero value for Dugbe in its share price, it's at risk of losing the licence if we don't do anything,” he said. At the same time, he said the style of project - a low-grade, openpit deposit - was not what the company was after. “We've said for a long time, strategically, it's not where we want to be,” he said. “We want to be looking at smaller, high margin projects.”
The Hummingbird boss estimates the company has put $70m into Dugbe in the last decade.
With gold at $1,700 an ounce (oz), its project economics look better than ever. While these highs won’t last forever, there is major interest within the sector in West African gold projects, shown by a recent Canadian-led run of M&A. Going by the Dugbe scoping study from 2013, its net present value at a gold price of $1,500/oz is $337m and it would cost over $200m to build.
Mr Betts said if Hummingbird tried to do the whole development by itself, shareholders would face hefty dilution just for the feasibility work. “It would swamp a company like Hummingbird,” he said.
ARX now has to raise the cash to finalise the deal, and the Liberian government has to waive its right to invest in the local holding company.
