After the market close on Thursday Rusoro announced their agreement to acquire 100% of Gold Fields’ Venezuelan assets, including the producing Choco 10 mine in the El Callao district of Bolivar State, Venezuela. The company will concurrently complete an equity raise of a minimum $160 million through a financing syndicate lead by Canaccord Adams and GMP Securities.

Rusoro will pay Gold Fields of South Africa US$150 million in cash, 140 million shares and US$30 million in a convertible vendor take-back loan, with an indicated transaction cost of about US$516 million. Upon closing, expected by early December, Gold Fields becomes the single largest shareholder of Rusoro, holding approximately 38% of the company’s shares.

Upon closing Rusoro becomes a pure gold producer of 120,000 oz/year. Annualized targeted production for the combined assets is 150,000 ounces per year by the end of 2008. The acquisition also contributes over 25,000 hectares of highly prospective exploration ground in the prolific El Callao Region.

Upon closing, Rusoro’s Measured and Indicated Resources will total 6.6 million attributable ounces Gold (Au) with additional Inferred Resources of 6.2 million attributable ounces, and dramatically expands Rusoro’s production growth profile, enabling it to fast track the Incredible 6 project.

This transaction quickly positions Rusoro as an intermediate gold producer. With a proven ability to operate effectively in Venezuela, Rusoro should be able to unlock further value from these Venezuelan assets.

Rusoro is well financed with over $50 million in cash post-acquisition and is well placed to continue its regional consolidation strategy.

Choco 10 Accelerates Consolidation Strategy

The Bolivar State region has an identical setting to some of the world's largest mining districts including Ashanti in West Africa and Kirkland Lake in Canada.

The benchmark price for reserves in Venezuela was set in November 2005 by Gold Fields when they paid approximately US$130 per ounce by buying Bolivar Gold Corp. Rusoro is acquiring the Choco 10 at about US$70 per attributable resource ounce. This is an especially remarkable acquisition, highly accretive for Rusoro, given that gold now trades at over US$725 per ounce versus 2005’s price level under US$500.

Choco 10 has been fully operational since 2006, with Proven & Probable reserves of 1.8 million ounces, Measured & Indicated resources of 3.85 million ounces and an additional 1.2 million ounces in the inferred category (Gold Fields 2007 Mineral Resource and Ore Reserve Statement). The processing facility allows for significant capacity expansion. This is a valuable attribute considering its close proximity to Rusoro’s Increible 6 project.

Rusoro’s filed NI 43-101 compliant resource base (dated August 2006) totals 1.03 million Indicated ounces and 3.02 million Inferred ounces. An updated NI 43-101 compliant report is expected within 45 days, and will include the analysis of an additional 40,000 metres of recent drilling completed at Increible 6.

Since the day Rusoro’s controlling shareholder Agapov family arrived in Venezuela, they committed to working closely with local miners and officials, building a relationship of trust and respect. Rusoro’s largest shareholder is Chairman Vladimir Agapov, a Russian entrepreneur. Vladimir has developed strong relationships with Venezuelan President Chavez in Venezuela and has a proven ability to operate there.. Vladimir and his son Andrei have strongly aligned their interests with public shareholders, having privately funding over US$40 million to get Rusoro’s assets to the point of their listing on the TSX Venture board on November 9, 2006.

Part of Rusoro’s strategy is to use its Venezuelan operating experience to help resolve several hurdles encountered by Gold Fields at Choco 10, mainly related to local labour relations and government permits. Rusoro’s focus over the next 12 to 24 months at Choco 10 will be to optimize operating efficiency, lower costs and study production ramp-up alternatives.

By dramatically expanding its production growth profile with fast-track production from nearby Increible 6, and through the expansion of production capacity and efficiencies at Choco 10, Rusoro positions itself to enter the intermediate producer ranks. This transaction also puts them well-ahead of other potential operators as THE regional consolidator, with one of the world’s premier gold companies as its largest single shareholder and $50 million in cash to advance their quest. Gold Fields obviously believes Rusoro will succeed where they found frustration.

Conclusion
There are few undeveloped large-scale gold deposits in the world today. Venezuela’s prolific gold belt offers an opportunity for investors willing to bet on its deeply-discounted assets – especially where held by an established, respected and politically connected group with a proven and growing resource, and a fully permitted and operating mining facility in place. Additional accretive acquisitions like last years Mena deal and now the Gold Fields transaction will create further synergies and increasing economies of scale. We are adding 50,000 units to the model portfolio by participation in this announced financing.

Website: http://www.rusoro.com

Postscript – October 12th: A bit disappointing that the company agreed to a full warrant, at least for existing shareholders -- but good for the new money. With the warrant terms at $4.00 per share exercisable for 5 years it does mean the company has a significant built-in financing. Thankfully it does not appear to be a transferable (tradeable) warrant, and so it will likely mean that people will exercise throughout the next 5 years, as the share price rises above the $4 level, as apposed to having to await for that last day -- the expiry date -- if it were freely tradeable. The other positive for existing shareholders is that if they had been tradeable, the stock price may have taken a bit more of a hit -- reflecting the trading value of the warrant -- usually about $0.30-0.40 per warrant.
Anyway, my numbers suggest that Rusoro should trade up to around the $3.00 -3.20 area as a fair value post-completion, and of course management is just getting started with their master consolidation plan. Could permit-challenged Crystallex (KRY-TSX) be the next logical target? Management would be very motivated to get their share price up to help minimize dilution and strengthen its value as currency to make another acquisition, so news flow should start to do that as we move forward with the consolidation of these new assets. Maybe the Venezuelan government will even help out with a friendly comment or two, given Rusoro's apparently favourable relationships