Vatukoula Gold funded for 2-year exploration programme with £7.4m placing

Vatukoula Gold Mines (LON:VGM) has raised £7.4m through an equity placing, to fund a two year exploration programme focused on the wholly-owned Vatukoula gold mine and the special prospecting licenses covering the Tavua Cladera mining area in Fiji. Investors welcomed the news, with shares rising just over 5% on London’s AIM market.

"We are pleased to announce this £7.4 million placing that will allow the company to carry out an initial two year exploration programme at Tavua Cladera in Fiji ... We believe the exploration programme has the potential in this gold price environment to add reserves and therefore greater value to our Vatukoula asset,” Vatukoula chief executive David Paxton said.

“Initial exploration studies utilising the wealth of data available to us from historic work and more recent surface drilling previously reported have been extremely encouraging.”
The company placed 400m new shares at 1.85p each, a 10% premium to 1.68p - the closing mid-market price when the placing letters were dispatched on 19 July. The placing shares will represent approximately 9.8% of the company’s enlarged issued share capital.

On closing, Vatukoula will have cash, and cash equivalents, of approximately £12m.

Following the interpretation of historic data, along with preliminary results from the desk study, the company has identified several highly prospective surface and underground exploration targets. Overall the two-year programme will cost approximately £5.4m, and it will be completed in December 2012.

The remaining funds will strengthen Vatukoula's balance sheet and will be used for general working capital purposes.

Vatukoula’s largest shareholder, Sprott Asset Management (TSX:SII) participated in the placing, subscribing for 70.8m shares.

The company is currently ramping up production and modernising the underground Vatukoula gold mine in Fiji. In the company’s most recent operations update, June’s Q3 report, the company reported that the Vatukoula treatment plant (VTP) processed 312,003 tonnes of ore at an average grade of 4.59g/t during the nine month period, compared to 143,033 tonnes during the equivalent period of the previous year.

Gold recovered increased from 26,313oz to 38,402oz in the nine months to 31st May, and sales for the first three quarters were up from 26,629oz to 35,391oz. The improved level of production, and higher gold prices, led to a significant improvement in the mines overall financial performance.

Net earnings for the first three quarters amounted to £7.3m, compared to a loss of £1.2m for the equivalent period of 2009.

The Vatukoula mine has a current JORC-compliant resource of 4.3Moz gold.

In a recent analyst note to investors, WH Ireland said there is still exceptional extensional and near-mine exploration prospectivity at Vatukoula, even though the mine currently has more than three decades of in front of it.

The stockbroker estimates that Vatukoula’s gross pre-mine mineralisation system is in-excess of 20Moz Au, and that current ore resources could materially increase within the next two to three years.

“We would expect, even predict, the likelihood of several smaller multi-million ounce shear zones within Vatukoula, including possibility of numerous smaller deposits nearby ... Given our understanding of the mineralising system, we believe that if adequately resourced, a substantial maiden discovery within 12 to 18 months could be announced,” WH Ireland said in May.