An independent study of the assets of Amur Zoloto LLC, the Russian company that London-listed Petropavlovsk PLC may buy, has revealed total JORC gold reserves of 1.35 million ounces, or about 13% less than the total mentioned in the April statement unveiling the proposed acquisition, Petropavlovsk said in a July 19 market statement.
The reserve estimate includes 1.21 million ounces of JORC gold reserves at an average grade of 1.81 g/t of gold and a further 140,000 ounces of alluvial reserves.
Publishing the study the same day it reported cutting its 2016 gold production forecast, Petropavlovsk said it still sees a "compelling strategic rationale" for the deal, despite the fact gold reserves are less than initially expected.
According to Petropavlovsk's statement, Amur Zoloto would diversify and de-risk the company's future production profile. The deal would also bring operational synergies and economies of scale that would "help to deliver a stronger balance sheet."
SRK also estimated the posttax net present value of Amur's mineral assets at US$170 million, assuming a 10% discount rate and a gold price of US$1,100 per ounce.
Petropavlovsk commissioned the SRK study after it agreed to consider purchasing all of Amur Zoloto's stock earlier this year.
Under the proposed deal terms, Petropavlovsk would acquire the Amur assets for 1,434,303,624 common shares, as well as take on US$16 million in debt.
Amur is ultimately controlled by Musa Bazhaev, chairman of Russian Platinum PLC, and other unknown investors.
It is focused on the Khabarovsk region of the Russian Far East, not far from some of Petropavlovsk's existing assets, and includes several prospective and operating gold properties, including the Yubileiny gold complex and the Perevalnoe mine.
Amur's total gold production is expected at approximately 39,700 ounces in 2016, according to the SRK report.
But the report also highlighted some potential red flags.
"SRK notes that in certain cases ... the local estimation of gold grade may be insufficiently reliable to support detailed mine planning and that achieving the grades stated in the life of mine plan will likely require a high degree of mining selectivity, for both the open pit and underground mining," the report read.
It did, however, say that Amur's reported global resource estimates were "reasonable and suitable for the purposes of ore reserve estimation."
The consultant also warned that gold at Amur's Krasivoe deposit was "at depth" and "not well supported by exploration data," while at Perevalnoe, silver grades were mostly based on extrapolations from the global relationship between gold and silver since not all samples were assayed for silver.
It qualified the warning, though, saying, "SRK is satisfied that there are sufficient indications that silver is present and that it can be recovered."