Spying a better opportunity in Chile,
Aur will pay up to US$262 million to buy a 76.5% interest in the open-pit heap-leach mine in the northern part of the country: Cominco’s 47.25% plus Teck’s 29.25%. Chilean-based Minera Pudahuel owns 13.5%, and the state-owned Empresa Nacional de Minera (Enami) has a 10% carried interest.
The US$262 million includes: the purchase price, US$155 million; US$67 million in project debt, which Aur is buying from a unit of Teck; and an obligation for payments of up to US$10 million annually for four years should the price of copper stay higher than an inflation-adjusted US$2,425 per tonne. There are also annual payments to Enami of US$2.1 million, and Aur assumes its share of the project’s bank debt, US$82 million.
Aur is to come up with US$192 million cash on closing and US$30 million in cash or shares by December 2002. Aur expects to finance the transaction with a combination of project debt, equity and cash. James Gill, president of Aur, says the debt portion would be in the range of US$180 million to US$210 million.
The equity portion, between US$45 million and US$60 million, would result in Aur’s issuing up to 35 million new shares, assuming a share price of US$2.25 per share. This would bring the outstanding shares in the company to more than 100 million shares (still less than contemplated in the Cambior transaction). Cominco and Teck have both agreed to purchase, if necessary, up to US$15 million in Aur shares to help finance the purchase.
The cash portion would be as much as US$50 million, though the company has not yet determined the breakdown of financing.
Aur expects all available cashflow from the mine to go to repay Quebrada Blanca’s financial obligations, before any dividends are paid to Pudahuel and ENAMI.
Under a right of first refusal, Teck and Cominco are offering their interests to Pudahuel, which must reply by March 17.
According to Teck, the deal is part of a rationalization program that includes the elimination of non-core minority interests in order to concentrate on larger projects, such as the massive Peruvian Antamina copper-zinc project, scheduled to enter production next year. Teck’s share of the transaction is expected to boost its cash reserves by US$140 million to US$280 million.
Cominco says it will use its share of the sale, estimated at US$176 million, primarily to reduce debt.
Situated 240 km southeast of Iquique in northern Chile, Quebrada Blanca started commercial production in 1994 and is expected to produce 75,000 tonnes of cathode copper from solvent extraction-electrowinning in 2000. The operation had a rocky start but was producing at capacity by 1996. It recorded an operating loss of about US$4 million in 1999.
Current cash costs are about US$1,125 per tonne, and its reserves are pegged at 150 million tonnes grading 0.91% copper. Aside from additional oxide potential, Quebrada Blanca has significant primary sulphide mineralization potential, which Aur expects to evaluate in the future.
Aur already produces copper at its 70%-owned Andacollo mine, in Chile, and the 40%-owned Louvicourt mine, near Val d’Or, Que. The acquisition will also increase Aur’s minable copper reserves at the end of the year to more than 2 million tonnes, whereas annual production should rise to 175,000 tonnes, an increase of more than 100%.
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