Giustra behind Goldcorp’s US$300M mines sale

Vancouver — In what looks to be a US$300-million pruning exercise, Goldcorp (G-T, GG-N) is spinning out mines in Australia and Brazil into a junior company led by Frank Giustra’s investment banking firm Endeavour Financial.

Acquiring the Peak mine in Australia and Amapari mine in Brazil will instantly make GPJ Ventures (GPJ.H-V, GPJFF-O), a 200,000-oz.- per-year gold producer, says GPJ president Gordon Keep, who is also managing director of corporate finance at Endeavour.

“It was Endeavour’s idea to do this deal and present it to both GPJ and Goldcorp,” says Keep, adding that the assets give the company a base from which to build. “They accepted.”

Subject to financing, GPJ Ventures will pay Goldcorp US$200 million in cash, and another US$100 million worth of GPJ shares (155 million), leaving Goldcorp with a 24% stake in the junior company, which is changing its name to Peak Gold.

On closing, Endeavour will receive a fee of 5 million shares in GPJ, which traded at 93 when its stock was halted on Feb. 19 to allow for the announcement.

In order to fund the transaction, GPJ will complete a financing of 370 million subscription receipts at 75 each. Each subscription receipt will be convertible into units of the company comprised of common shares and half of a transferable share purchase warrant.

Each whole warrant will entitle the holder to buy an additional common share of the company for five years at a price to be determined. Proceeds will be used to fund acquisition costs and to set up an office and hire employees.

News of the deal comes as a sharp reduction in proven and probable reserves at Amapari — to 485,000 oz. gold from 1.34 million oz. at the end of last year — forces Vancouver-based Goldcorp to post a US$170-million charge against its 2006 earnings.

The reduction reflects the exclusion of sulphide mineralization previously included in proven and probable reserves, the company says.

Already Canada’s second-largest gold miner, Goldcorp says it intends to focus on 11 mines and seven projects in North and South America that it considers to be core assets.

“This transaction underscores our commitment to simplifying Goldcorp’s asset portfolio,” says Kevin McArthur, Goldcorp president and CEO. “It sharpens our geographic focus and provides capital that will help fund our growth opportunities and enhance our already strong financial flexibility.”

Goldcorp shares fell 7 to $32.74 on the day the transaction was announced.

One analyst says he is not surprised by the deal.

“Amapari, has been a problem from day one,” says John Ing, president of Maison Placements Canada, a Toronto-based investment firm.

“Peak had reached its peak a couple of years ago,” he says. “Frankly, these are two underperforming assets.”

Combined production from the two mines is expected to be 215,000 oz. gold this year, with Peak contributing 120,000 oz. and Amapari, 95,000 oz.

Julio Carvalho, previously Goldcorp’s executive vice-president of South America, will serve as CEO of Peak Gold. Jim Simpson, previously general manager of the Peak mine, will act as chief operating officer.

Initially, the Peak Gold board of directors will be comprised of Goldcorp chairman Ian Telfer, Endeavour Financial chairman Frank Giustra, Keep, and Carvalho.

Completion of the transaction is subject to a number of conditions, including the execution of definitive agreements, requisite regulatory approvals, completion by GPJ of a $277.5-million (Canadian) equity financing, and shareholder approval.

The Amapari mine was commissioned in the second half of 2005. It consists of an open-pit and heap-leach operation and an undeveloped sulphide milling operation sourcing ore from open pits and an undeveloped underground operation.

Following commissioning of the hydrometallurgical plant in the third quarter, a total of 24,715 oz. gold was poured in 2005. At the end of the year, a total of 918,000 tonnes of ore had been stacked on the leach pads and placed under irrigation.

The mine is located in the Vila Nova greenstone belt, part of the Guiana Shield that covers the northern part of Brazil, parts of the Guianas, and extends northwest into eastern Venezuela.

The Peak gold mine is a medium-sized operation located in the Cobar gold field of central-west New South Wales, Australia. It is comprised of a series of deposits, all feeding a 672,000-tonne-per-year central milling operation.

Most of the production is derived from ore mined from underground and is supplemented by stockpiled material. In addition to gold, the mine is expected to produce 8 million lbs. copper this year.