TORONTO () -- Moydow Mines [TSX:MOY] and Diamond Fields [TSX:DFI] recently announced a proposed merger that would see MOY shareholders owning 40% of DFI if it succeeds. The deal would appear to make sense on a number of levels, and RI caught up with Moydow's President and CEO Brian Kiernan at PDAC to get a better feel for the story.
The Merged Company
Mr. Kiernan explained the rationale behind the deal, noting that, "Diamond Fields obviously has diamond expertise and production expertise and they've got some very good gold projects in West Africa. We bring the West African and exploration expertise, as well as the managerial expertise to the table on this. I think that's comparatively unique, to be able to have a good spread of personnel and a good spread of abilities within the company.
"What we really want to do is get into diamond production, having product is extremely important if you want to be in the game in the diamond business - you can't be on the outside. Diamond Fields' name is the best brand name out there, and you need to market something recognizable."
He also pointed out that the diamond business is very much a relationship business, and combined with critical mass which this merger creates, this is very much part of the allure of this deal for the Irish Moydow.
An Unparalleled Record
For readers that aren't familiar with Moydow, management has a brilliant track record, having discovered three different multi-million ounce gold deposits in West Africa.
Moydow brings an extremely exciting Angolan diamond project to the putative 'NewCo', indeed a recent airborne geophysics survey over the Dala Diamond project identified about 70 targets, and sampling is already revealing significant concentrations of kimberlitic indicator minerals.
Dala is surrounded by the majors and in gold terms Dala could be the Kiernan's first 5+ million ounce deposit if drill results can live up to the promise that early work on the project has indicated. Indeed, initial estimates show the potential for 20 to 30 million carats at grades ranging from 1 to 1.5 carats per cubic metre at a value of $75 to $120 per carat - truly, this could be a homerun for shareholders if it works.
Self-Funding
Another significant aspect of this deal is that the merged company will soon be on the receiving end of cash flow from DFI's Namibian project as they turn around operations, and in a few short years will also begin collecting a royalty from Ntotoroso, one of the mines discovered by the Moydow people and sold to Newmont [NYSE:NEM]. At current metal prices, Ntotoroso could push $3 million per annum into the treasury.
The key here is that between these two sources of income, DFI won't have to go back to the market repeatedly and dilute its shareholders, as so many juniors are in the habit of doing. Kiernan shares his thoughts on this score below:
"The other thing that were trying to achieve is to be a self-funding, self-financing exploration company. If we go to the market once we'll never go back again because we've got production and a royalty coming through as well. If you're good at exploration like we are, you're going to be lucky. I really hate diluting my shareholders, maybe because I'm a big shareholder myself, but I don't think there's any value in diluting your shareholders just to drill a couple of holes in the ground in the middle of Africa, you only dilute shareholders when you're doing something you know will make them money.
"What I want to do is raise money once, and then after that, theoretically, this horse runs in every race, and at good odds every time. Our duty is to our current shareholders, not our future shareholders, these are the people I want to make money for, and we're not about to start putting out stock just to make new shareholders wealthy. I think we can get ourselves into a position where we're producing some of the highest quality diamonds in Africa and get into that mid-tier level of production which is something of a niche as far as public companies go."
Conclusion
What this means is that the company has excellent exploration projects but they're not going to dilute the shareholders in order to assess them. A small financing here will allow them to test the Dala targets and if they prove worthy, a larger financing will be an appropriate move because this will essentially become a development play which would be accretive to shareholders in the short term as the project generates cash flow.
All in all, despite the fact that DFI would have 186 million shares out following the close of this deal, the story would appear to offer plenty of upside with a market capitalization around C$35 million. Dala could be a company maker, and both companies also bring exciting rosters of other gold and diamond projects to the table, not to mention cash flow and a handsome royalty. With a first rate management team, high quality projects and cash pouring in without dilution, Diamond Fields looks quite compelling at these levels.
Shares in MOY and DFI closed at 39.5 cents and 20.5 cents respectively on the TSX Wednesday.
