November 12, 2009
Olympus Pacific Merges With Zedex To Create A Significant New Gold Producer In South East Asia
By Charles Wyatt
www.minesite.com/cnd.html
Rumours of an impending marriage between Canadian-listed Olympus Pacific Minerals and ASX-listed Zedex Minerals have surfaced from time to time over the past year or more, but this time round the two companies are actually going to make it to the altar. All the major players are in favour, and there is no fire breathing reptile blocking the path and keeping them apart. Getting together makes a lot of sense and, in the end, logic will out. For a start John Seton, brother of the executive chairman of Olympus Pacific, David Seton, is chairman of Zedex, as well as also being on the board of Olympus. Second, Zedex already has a significant shareholding in Olympus Pacific. Third, the Seton family have a swag of shares in both companies and want to have it under one roof for obvious reasons. Fourth, the business combination of the two companies, which operate in the same area of the world, adds up to a very strong junior gold production company.
Cutting to the chase, by the end of 2010 Olympus Pacific will no longer be just a producer with 1.5 million ounces of resources focused solely on Vietnam. By then it will have annualised production running at 80,000 ounces per year, backed up by resources amounting to over three million ounces and rising. What is very important, as David Seton points out, is that the enlarged Olympus will have diversification across four projects in Vietnam and Malaysia, and a pathway through to a production rate of 300,000 ounces by 2014. Some North American investors may still jib at Vietnam, after all US troops did get a bit of a hammering out there, and it still has a communist government, but Vietnam’s economy is now shaping up as one of the power houses of the Far East, and its bureaucracy, though slow, is uncorrupt. Malaysia, of course, is a country favoured by Western investors as its government is closely modelled after the Westminster parliamentary system, as a legacy of British colonial rule which finished with independence in 1957.
The deal between the two companies, though outwardly complicated because Zedex is incorporated in New Zealand, simply involves a paper swap so that every shareholder in Zedex gets one new Olympus share for every 2.4 Zedex shares held. It is capital efficient, too, as Zedex’s shares in Olympus are being distributed to its shareholders too, so dilution is limited. The result is that the Zedex shareholders will end up with 39.4 per cent of the enlarged company, compared with the indirect 26.3 per cent they now hold through the Zedex stake in Olympus. The Seton brothers stepped aside from the actual negotiation over terms. One of those put into bat on their behalf was Alan Eggers who is an independent director of Zedex, and who will be speaking at our Christmas Forum about his new uranium company, Manhattan Resources. When everything is wrapped up by early next year, the shares of the new Olympus will be quoted on Toronto as well as the ASX, and demand and liquidity should improve as a result.
Readers of Minesite already have a fair knowledge of Olympus, but a description of Zedex is probably in order. It has a 50.05 per cent interest in the Bau joint venture in Sarawak in eastern Malaysia, which it also operates. Its partner is a local Malaysian mining company with the exotic name of Gladioli Enterprises. The joint venture tenements cover 828 square kilometres of the most highly prospective ground of the Bau goldfields. These goldfields have operated since 1864 and are recorded as having produced 1.5 million ounces of gold. Regional analogies and exploration results to date indicate the potential for significantly greater undiscovered targets.
All of which means that Avocet Mining may still be smarting, as Zedex acquired its interest there from virtually under its nose. Cameco is said to have invested around C$20 million there too, and across the border into Kalimantan in the mid 1990s, but it must have lost interest after the Bre-X scandal. Anyway, the current JORC status resource at Bau amounts to 1.612 million ounces of gold, plus identified geological targets in deposit extensions and adjacent zones amounting to a further 3.3 to 4.5 million ounces. Feasibility work will start at the Bau project next year.
Zedex also has a 75 per cent interest in the Tien Thuan (Tiger Mountain) gold project in Vietnam, 50 kilometres west of the port of Quy Nhon. The area was extensively mapped and sampled by the Geological Survey of Vietnam in the 1990s, and that work is being validated and extended through detailed geological, geochemical and geophysical surveys. The real excitement, however, will come when drilling takes place at depth below the outcropping shoots. This project consolidates the position of Olympus Pacific as a first mover in the country, as it commissioned the first two gold mines – Bong Mieu and Phuoc Son – built there since the 1940s. Bong Mieu was first into production and its throughput is now being supplemented by high grade ore transported from Phuoc Son. The combination should ensure production of 40,000 ounces gold in 2010, but by that time a new and more sophisticated plant will have been constructed at Phuoc Son which should double production by 2011.
The path to combined production in Vietnam and Malaysia of 300,000 ounces per year in 2014 is an interesting one. In 2012, the first phase of Bau should come on stream at a rate of 30,000 ounces per year. Combined with improvements at Bong Mieu, that should take the total to 145,000 ounces. The following year production from Bau is expected to double and the contributions from both Bong Mieu and Phuoc Son will also improve, to give a target of 245,000 ounces. But the big push will come in 2014 when Bau and Phuoc Son are level pegging at 100,000 ounces, and Bong Mieu tops them with 105,000 ounces.
A lot of water has to pass under the bridge before this is achieved, but it is worth noting that nothing is expected from Tien Thuan by then, and the ongoing acquisition of a 60 per cent interest in the Capcapo gold property in northern Philippines, which is being negotiated, gets barely a mention. Look at a map, however, and it is easy to see that the projects in three countries are very close in reality, forming a triangle enclosing the South China Sea. The only project the enlarged company will hold outside this triangle is the Enmore goldfield in New South Wales, where seven historic mine prospects have been partially investigated.
So Tien Thuan and Enmore add weight to the portfolio of the new Olympus. Other acquisitions can be expected, though these will not be allowed to deter management from the central thrust of production. Nor should it be overlooked that Zedex has a two per cent gross over-riding royalty on production from Bong Mieu, and this will no longer apply in the new set-up. As far as investors are concerned, though, they can now be sure, even though the last “t” will only be crossed in January with the ASX listing, that they can trade in what is effectively the new Olympus on the Toronto Exchange (OYM), and know they are involved with a significant gold producer in South East Asia. And where better to be with the geopolitical axis of the world moving steadily in that direction?