Sarama Resources has entered into an agreement that gives Acacia Mining the right to earn a significant interest in its South Hounde project, located in Burkina Faso.
West Africa-focused Sarama Resources (TSXV:SWA) livened up a slow Thanksgiving news day with the announcement that it has entered into an agreement that gives Acacia Mining (LSE:ACA) — known as African Barrick Gold until just recently — the right to earn a significant interest in its South Hounde project, located in Burkina Faso.
Specifically, Acacia can earn up to a 70-percent interest in the project by satisfying certain conditions over a four-year earn-in period. Those include:
- Making an initial cash payment of $1 million.
- Spending $3.5 million per year on South Houde over the course of the next two years.
- Spending an additional $3.5 million per year on the project during the two years after that.
After that point, Acacia will have the right to earn a further 5-percent interest in South Hounde upon declaration of a mineral reserve of at least 1.6 million ounces of gold and “payment to Sarama of an amount equal to 5% of the expenditure incurred by the parties from the time that Acacia earned its 70% interest in the Project to the declaration of the mineral reserve.”
A risky jurisdiction?
Those with a close eye on the gold market will likely remember that Burkina Faso hasn’t been receiving the best press lately.
Just a month ago, the country’s president declared a state of emergency in the face of violent protests demanding his resignation. The conflict left its mark on gold companies in the country, with True Gold Mining (TSXV:TGM), Roxgold (TSXV:ROG) and others initially seeing fairly substantial share price drops.
Though the situation has cooled since then, with market participants and analysts expressing optimism that miners will ultimately come out in the clear, it’s no secret that investors crave stability. And unfortunately, a Reuters article published on Thursday indicates that it may be awhile before that stability is in place — as it explains, Burkina Faso’s transitional government has decided to review mining contracts signed by the former president.
The move is reportedly a response to concerns that “some [contracts] were agreed in opaque conditions,” implying that law-abiding companies will have no difficulties, but of course it is difficult to say for sure.
Haywood Securities positive
All that said, a Haywood Securities note published Thursday is positive about the deal. In summary, the firm states that the transaction, “provides immediate funding to advance the project, brings in a partner with a focus on building sizable operations, and will provide catalysts through 2015 that Sarama was unlikely able to do on its own.”
The firm is hopeful that with the funding it will get from Acacia, Sarama will be able to add other exploration properties to its portfolio, and notes that as Acacia is focused on projects that can put out over 150,000 ounces annually, it may have similar views in terms of South Hounde’s potential.
Furthermore, Haywood isn’t too concerned about the project’s location. Though it notes that “some recent issues have impacted shareholder sentiment, and it is possible that there may be similar or new concerns going forward,” the firm also points out that “there are no current issues in the countries in which [Sarama] is active at the moment.”
The firm has placed a “buy” rating on Sarama, along with a price target of $0.20. The company’s share price ended Wednesday at $0.06, up 50 percent from its close the previous day.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.