It is no secret that lower gold prices are making management teams leaner. But a lesser-discussed result of all the cost-cutting is that geographical diversification can also be lost.
That is just the scenario unfolding at Alacer Gold (TSX: ASR; US-OTC: ALIAF; ASX: AQG). The Colorado-based company announced that it is done with its higher-cost Australian assets and will instead focus its energy — and its capital — on its flagship Copler gold mine in Turkey.
Alacer signalled to the markets months ago that it was looking to shed its Higginsville and South Kalgoorlie mines in the country, and it has done just that. The buyer is Metals X (ASX: MLX), Australia’s biggest tin miner, and the price being paid is short of what most had expected.
Metals X agreed to pay $38.4 million in cash, which is much less than the $52.3 million that Morgan Stanley determined, or the $82.4 million that Macquarie Equities said they were worth or the $103 million that BMO Capital Markets says they are worth.
These valuations, however, were based on the mines actually staying in operation. But with Alacer saying that their operation was in jeopardy, securing some amount of cash was deemed better than receiving nothing and staying on the hook for closure costs.
The closing of the deal is the biggest moment so far in Rodney Antal’s run as CEO. Antal took the reins at Alacer in August in a promotion from his post as chief financial officer. The press release announcing his appointment also stated that both Higginsville and South Kalgoorlie would go on care and maintenance within the next year and a half, unless gold prices turned around.
The mines’ narrow margins were a big part of the gloomy forecast. With cash costs expected in the range of US$1,140 to US$1,250 per oz. at Higginsville and between US$1,210 and US$1,330 per oz. at South Kalgoorlie, there wasn’t a lot of wriggle room for the company.
For its part, Metals X — which takes ownership this October — saw an opportunity to grab gold assets at a time that valuations are depressed.
The company says the mines are in no danger of being shuttered under its control, and trumpeted the acquisition’s ability to bring cash flow into its coffers and help develop its Central Murchison and Rover 1 gold projects, which are both located in Australia.
Metals X has four large gold assets now, and it’s aiming to become a name in the precious metal space, if prices rebound in the coming years.
“Our strong balance sheet has allowed the company to act swiftly in securing the assets under favourable terms in accordance with the production growth and diversification strategy that is in place,” Metal X CEO Peter Cook said in a release.
Higginsville, which is located 125 km south of Kalgoorlie within the Eastern Goldfields of Western Australia, produced 137,000 oz. gold last year, but costs rose due to the growing cost of accessing higher-grade orebodies at the Trident and Chalice deposits, along with rising energy costs.
South Kalgoorlie, 15 km south of Kalgoorlie, produced 40,000 oz. gold last year.
In comparison, the company’s Copler mine in Turkey produced 151,000 oz. last year, and Alacer recently upped its 2013 guidance to between 192,000 and 200,000 oz. gold. It expects to turn this gold out at total cash costs from US$405 to US$425 per oz.
While the deal means Alacer is closing-up shop in Australia, it still retains its rights, in case a $21-million refund in Australia comes through. Such a refund would only come if the company can appeal a Western Australian stamp-duty assessment that was paid when Australia’s Avoca merged with Canada’s Anatolia to form Alacer in 2011.
The deal also entails that Alacer maintains ownership of long-lead items that were acquired in advance of the South Kalgoorlie expansion project. These items have a book value of $6.79 million. Alacer can remove the $44.6 million that was sitting on its balance sheet liabilities in connection with the closure provisions for the mines.
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