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Riverstone Resources to benefit from Roxgold transaction

Published: 20:36 24 Oct 2011 BST

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Riverstone Resources (CVE:RVS) received positive commentary from David Coffin and Erin Coffin's HRA Advisories Hard Rock Analyst journal this month.

Riverstone reached an agreement with Roxgold Resources (CVE:ROG) that allows Roxgold to consolidate the project interests it is earning from Riverstone, and in turn, allows Riverstone to immediately monetize its retained interest in those projects, the report said.

Riverstone holds an extensive portfolio of six exploration projects covering 2,300 square kilometres in Burkina Faso.

Under the agreement, Roxgold is purchasing the retained interests held by Riverstone in the five projects in Burkina Faso it has under option for $17 million in cash and 16 million Roxgold shares. In order to pay for the deal, Roxgold is completing an underwritten placement subscription receipts at 85 cents per share. Upon completion of the deal, Riverstone will hold 19.3% of Roxgold’s outstanding shares, allowing Riverstone to benefit from continued exploration success at these properties.

"This is a pretty smart deal for both sides. The Yaramoko project that forms part of this deal has been generating a lot of excitement recently thanks to very high grade drill results from the Bagassi Central target. Roxgold has gotten the bulk of the market value increases, even though Riverstone held 40% of the project," the research note stated. 

According to the note, Riverstone has been experiencing a "financing overhang" in its market for some time, but after this deal, Riverstone is fully funded for exploration work well into next year. Riverstone plans to start drilling again at Karma in Burkina Faso, with six rigs.

Currently, the Karma project hosts an NI 43-101 compliant gold resource of 810,000 ounces of gold in the indicated category and 1.1 million ounces in the inferred category. The Goulagou deposit at the site is subject to an option agreement with Golden Star Resources.

The cash from Roxgold, plus Roxgold shares worth $16 million, should also "allay concerns" about a balloon payment due to Golden Star for the Goulagou permits in January, HRA Advisories said.

"This payment can be made in any combination of cash or shares, at Riverstone’s discretion and this [Roxgold] deal gives Riverstone plenty of flexibility," David and Erin Coffin said.

"Even though RVS no longer has a direct ownership interest in the [Yaramoko] project it’s hard to complain about a $17 million cash injection with no dilution plus a shareholding worth another $22 million at today’s prices for what is still an early phase project."

Net of the cash injection and the Roxgold shareholding, the journal report noted that Riverstone is valued at roughly $30 million, which is "pretty cheap for a company with at least a couple of million ounces on hand and a still growing resource".

While most of the zones at Riverstone's Karma don’t have the "market oomph" that Bagassi does at Yaramoko, the Coffins insist that these ounces still count and as Riverstone details a clear path to development, they should get higher values.

Recently, Riverstone added a new president and COO, Dwayne Melrose to its management team. Melrose previously worked for Cameco and Minco, where he had a direct hand in placing several projects into production, expected to hekp the company as Karma is developed.

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