Largest gold producer to get bigger

An agreement-in-principle sets the stage for Anglogold (AU-N) to acquire the gold assets of Minorco (MNRCY-Q).

The South African major offered Minorco US$550 million in cash for its interests in five operating mines and several exploration projects spread throughout the Americas. The operations include: the wholly owned Morro Velho and 50%-owned Serra Grande mines in Brazil; the 70%-held Jerritt Canyon mine in Nevada; the 67%-held Cresson mine in Colorado; and the 46%-held, newly commissioned Cerro Vanguardia gold-silver mine in southern Argentina.

In a joint release, Bobby Godsell, Anglogold’s chief executive officer, says the deal not only increases shareholder value but strengthens the company overall. “This represents one important step towards our becoming a globally active gold company.”

For its part, Minorco says the sale price places a value on its gold assets that has not been reflected in its share value. “This is a favorable transaction for Minorco,” stresses Hank Slack, the company’s chief executive officer.

The recent offer is the culmination of more than a year of discussions between the companies and represents Anglogold’s progression into the global mining scene. The company was created last June through the merging of Anglo American’s gold companies.

“We initially spoke about that intended merger in November of last year, and in exactly the same breath expressed our interest in acquiring Minorco’s gold interests,” says James Duncan, Anglogold’s executive officer for corporate communications. “We flagged our intention to be a global gold player, and this is really the first manifestation of it.”

Duncan adds that the company continues to pursue additional acquisitions or joint ventures throughout the world, whether the projects be at the advanced or grassroots stage. “We have an executive officer whose sole responsibility is new business development.”

Anglogold is currently the world’s largest producer of the yellow metal, turning out 6.7 million attributable ounces yearly (or 9% of the world’s output) from 12 mines in South Africa and one in each of Mali and Namibia. The acquisition would increase the company’s attributable production by 800,000 oz., as well as boost reserves and resources to 154 million and 437 million oz., respectively.

This year, the company budgeted US$30 million for exploration, and next year’s target is expected to approach, and possibly exceed, US$50 million.

Minorco plans to use the proceeds to pay down debt.

The company remains active in the base metal industry, largely through its 44% stake in the newly opened Collahuasi mine in northern Chile. It is also a significant producer of industrial minerals and has a strong hand in the pulp and paper sector.

A final agreement requires the approval of each company’s board of directors, shareholders and regulatory authorities. The acquisition price will be adjusted to reflect the net value of the assets and each project’s long-term debt as of Dec. 31.