VANCOUVER — Toronto-based AuRico Gold (AUQ-T, AUQ-N) completed the sale of its El Cubo silver-gold mine in Mexico’s Guanajuato state and its Guadalupe y Calvo silver-gold exploration project in Mexico’s Chihuahua state to Vancouver-based Endeavour Silver (EXK-N, EDR-T) on April 16. The transaction marks the second major asset sale for AuRico in the past four weeks, with total proceeds estimated at US$305 million.
The transaction helps both companies meet mid-term goals, as AuRico continues to focus on its North American gold assets, while Endeavour aims to expand regional silver operations following a record year — company revenues jumped 39% to US$49 million in 2011.
Under the agreement Endeavour will make a hybrid payment of US$200 million at closing, with the ratio of cash and common shares to be determined at its discretion. Endeavour shares may compose up to US$100 million of the purchase price, with the remaining cash balance being taken care of through a post-closing cash payment. AuRico could also receive up to US$50 million in additional cash over the subsequent three years depending on operational conditions.
“AuRico Gold views Endeavour as a logical owner for these properties and solid operators positioned to deliver on the potential we see at both the El Cubo and Guadalupe y Calvo properties,” comments AuRico president and chief executive officer Rener Marion, “We look forward to participating in the future success of these two assets through our potential ownership interest in Endeavour and through the future receipt of the contingent payments.”
El Cubo is operating at a 1,200-tonnes-per-day throughput rate, and has 965 employees. The silver-gold mine comes equipped with a 400-tonnes-per-day leach plant, plus a lease until May 2013 on the adjacent Las Torres mine, which includes a 2,000-tonnes-per-day flotation plant. El Cubo is Endeavour’s third active Mexican silver-gold mine, and is only 10 km from the company’s Guanajuato mine,
“El Cubo’s proximity and similarity to, and potential synergies with, our Guanajuato mine, make it a logical and strategic acquisition that will have an immediate and sizable impact on our production, reserves and resources with minimal or no dilution to our shareholders,” company chairman and chief executive officer Bradford Cooke explains. “We hope to replicate at El Cubo the same types of exploration and operational successes that we have engineered at our Guanacevi and Guanajuato mines.”
Based on first quarter production and guidance, El Cubo should increase Endeavour’s 2012 output by 12% to 4.8 million oz. of silver, and boosts the company’s silver reserves by 110% to 35.3 million oz.
Guadalupe y Calvo is an exploration target 300-km-southwest of Chihuahua, Mexico. AuRico has completed 22,500 metres worth of drilling on the target since 2010, with highlights including: 5.9 metres grading 8.96 grams gold per tonne and 587 grams silver at hole 203; 2 metres carrying 8.64 grams gold and 656 grams silver at hole 207; and 1.1 metres grading 19.21 grams gold and 73 grams silver at hole 215. According to reports, the company spent roughly US$5 million at the target in 2011, and was looking to move the project toward preliminary feasibility last March.
The divestment of El Cubo follows hot on the heels of a similar deal AuRico finalized three weeks ago with Australian gold-producer Crocodile Gold (CRK-T). AuRico sold its Stawell and Fosterville gold mines in Victoria State, Australia to Crocodile for US$105 million, including US$70 million in cash and 20 million Crocodile shares valued at US$10 million. AuRico also has the right to earn US$25 million in contingency payments over the following three years, conditional on the gold price exceeding US$1550.
AuRico is focusing on maintaining a portfolio of large, low-cost, long-life North American gold assets, and the El Cubo deal “completes the company’s rationalization of non-core mines”.
The US$170 million in liquid capital AuRico will receive upon closing of the two mine divestitures will help with an estimated US$275 million in capital costs slated to be spent at its three remaining gold mines during the year.
The bulk of the capital will be spent on open-pit ramp-up and underground expansion at AuRico’s newest addition, the Young-Davidson gold mine 60-km-west of Kirkland Lake, Ontario. The company expects to spend between US$173 million and US$187 million on the project in 2012.
Young-Davidson's commercial production is slated for the end of the third quarter, with open-pit throughput levels projected at 35,000 tonnes per day. According to 2012 guidance estimates the mine should produce between 65,000 and 75,000 oz. of gold this year at average cash costs in the US$450 to US$550 range. Young-Davidson has proven and probable reserves totalling 46 million tonnes carrying 2.56 grams gold per tonne for 3.8 million contained oz gold.
AuRico’s second-most-expensive capital endeavour involves ongoing production-expansion initiatives at its El Chante gold mine 37-km-northeast of Caborca, Mexico. The project is expected to cost between US$45 million and US$49 million. AuRico hit throughput target rates of 96,000 tonnes per day at El Chante in March following the completion of a phase-two expansion to its crushing and stacking infrastructure.
The company is also in the midst of a leach-pad and mine fleet expansion, as well as mobile equipment upgrades. El Chante produced 19,100 oz. gold during the first quarter at average cash costs of US$409 per oz. The mine hosts reserves totalling 41 million tonnes grading 0.63 gram gold for 851,000 contained oz. gold.
AuRico will spend an additional US$36 million to US$50 million on underground and open-pit expansion programs at its flagship Ocampo gold-silver operation located in Chihuahua State, Mexico. Mill expansion at Ocampo is slated to increase to 4,000 tonnes per day by 2014, and the company is commissioning a new shaft system, as well as adding two leach tanks, and converting its rod mill to a ball mill.
AuRico recently launched mine plans for three new open pits at Ocampo, including: Los Molina, Belen-San Jose, and Estrella. The company has a third-underground-mine expansion underway, and averaged open-pit throughput rates of 107,000 tonnes per day through the first quarter. Ocampo is expected to produce between 180,000 and 200,000 oz. of gold in 2012 at average-cash costs between US$465 and US$495 per oz.
AuRico shares have traded at a 52-week range of $8.55 to $8.92 on average volumes of 1.05 million units per day. Share prices rose 2% or 18¢ following news of the mine divestment with Endeavour, to an $8.87 presstime close.
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