TORONTO (miningweekly.com) – Cashed-up gold producer Red Back Mining believes that it has the experience and financial resources to accelerate the development of the Moto gold project, in the Democratic Republic of Congo, CEO Richard Clark said on Monday.

The project is 70% owned by TSX- and Aim-listed Moto Goldmines Limited (MGL), which has agreed to be acquired by Toronto-based Red Back in a share-based transaction.

Red Back Mining owns two gold mines, Chirano in Ghana and Tasiast in Mauritania, as well as some projects in Ghana.

MGL shareholders are expected to vote on the takeover – in which each outstanding common share of Moto will be exchanged for 0,45 of a common share of Red Back – in the next two months, and the deal is expected to close in August, the companies said.

In the meantime, Red Back will work with MGL to review the updated feasibility study completed earlier this year for the Moto project, Clark said in a conference call.

He refused to speculate about what changes could be made to the project plan, but pointed out that the feasibility study was designed specifically under the assumption that the mine would be built by MGL, which is a single-asset company that does not having existing cash flow.

“Having the flexibility of the financial strength and the operational strength of Red Back, we think might open up a lot of optimisation opportunities for a slightly different development of the project,” Clark commented.

Over the last few years, MGL And its team reviewed various development scenarios, and Red Back will sit down and review the options, to see which would best fit the combined company.

“But we are not going to know that for a couple of months,” he added.

Still, regardless of how the project plan develops, Red Back is confident that it could cover the capital requirements out of cash flow, if necessary.

“We've got $165-million in working capital in the bank right now, and that's available for this project, as well as cash flow from both mines,” Clark said.

Still, the firm will look at tapping the credit markets for part of the project cost, and expects that it could secure debt financing on relatively favourable terms.

“We are definitely going to look at debt facilities, it's just a good business practice,” Clark said.

The agreement entered into between the two companies includes a commitment by MGL not to solicit competing offers, as well as a break fee of C$15,3-million.

Earlier this year, the CEO of Africa-focused Randgold Resources Mark Bristow said that he had held talks with the management of MGL on a potential acquisition of the company.

FORTUNE MAKER

Based on the March 2009 feasibility study, the Moto gold project contains 42,3-million tons of reserves, at 4 g/t of gold, for 5,5-million ounces of gold.

The study was adjusted from an earlier report, to include plans for a high-grade underground mine, in addition to the openpit operation.

The mine, which will be the largest gold mine in the DRC, is expected to have a life of 16 years, producing a total of 4,8-million ounces, and cost $438-million to build, including contingencies.

Average annual production in the first five years of operation is estimated at 484 000 oz/y of gold, at an average unit cash cost of $303/oz.

“There is no question in our minds that the Moto project is a world-class gold project, and really can make the fortune of a company like Red Back going forward,” Clark said.

Investors in MGL breathed a sigh of relief in January this year, when the company announced that the DRC government had completed its review of the mining contract for Moto.

The DRC agreed that MGL would retain its 70% of the asset and a government-owned company, L'Office des Mines d'or de Kilo-Moto (Okimo), would continue to hold the balance.

According to the agreement, Okimo received a nondilutable 30% holding in MGL's local subsidiary, Borgakim Mining, is now joint-venture owner of the project.

Clark and MGL COO Andrew Dinning both said on Monday that they are confident that security concerns in the DRC can be overcome.

“We are confident that we can construct a mine in the near term. But is it going to require more of a security presence than, say, in Ghana? Absolutely. But that is just the nature of the beast,” Clark said.

Site security requirements for the construction and operation of the mine have already been costed into the feasibility study of the project.

MGL shares gained 3,3% in Toronto on Monday, to C$4,65 apiece by 16:10 ET.

Red Back dropped 6,2%, to C$9,80 a share.