Indiana Resources share price jumps to 3-year high on acquisition news

The Indiana Resources Ltd (ASX: IDA) share price surged to a more than three-year high this morning on the back of an acquisition.

Shares in the gold explorer jumped by 25% to 5 cents a share when the All Ordinaries (Index:^AORD) (ASX:XAO) and the S&P/ASX 200 Index (Index:^AXJO) gained over 2% each.

But the IDA share price stands in contrast to the wider gold sector, which is losing favour today due to rising risk appetite.

The Ramelius Resources Limited (ASX: RMS) share price lost 2.3% to $2.10 and the St Barbara Ltd (ASX: SBM) share price fell 0.6% to $3.45.

Buying its way to 1m ounces

What’s keeping Indiana Resources in investors’ good books today is the hope that its acquisition of privately-owned Patron Resources Limited will turn the nanocap into a one million ounces of gold producer.

Patron’s subsidiaries own a range of tenements in Central Gawler Craton in South Australia that covers 2,660 square kilometres.

The exploration ground hold advanced to early stage targets that are located between the historic mining centres of Tarcoola and Tunkillia.

Good area to dig

Management is quick to point out that the area includes a number of successful gold projects and it believes this increases the chances of Indiana Resources making significant discoveries.

“Importantly, this transaction allows Indiana to actively explore in this exciting and low-risk region at a time of record gold prices,” said its chairman Bronwyn Barnes.

“With multiple drill ready targets across the tenement package already identified, we are going to move quickly to target those areas that demonstrate strong potential for moderate to high-grade gold opportunities.”

Cost of the acquisition

Indiana Resources will pay a non-refundable deposit of $30,000 plus $15,000 for a rehabilitation bond.

It will issue Patron 18 million shares in IDA and an additional $95,000 on completion of the takeover.

Further, Indiana Resources will pay two trances of performance shares that are linked to specific outcomes.

Milestone payments

The first set of performance shares will convert to 7 million ordinary shares it Patron’s tenements achieves a JORC resource of 500,000 ounces of gold or gold equivalent at a cut-off grade of  0.5 grams a tonne of gold (g/t Au) for an open pitable resources and 2g/t Au for underground resources, with at least 50% of the resource in the “indicated” category.

Patron will get a second trance of 12.5 million shares if the tenements turned out to hold at least one million ounces of gold with the same conditions as highlighted above.

The performance milestones must be achieved within five years and are subject to approvals from the ASX and Indiana Resources shareholders.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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