Metallica buys Glamis’s Cerro San Pedro royalty (April 02, 2004)

Metallica Resources (MR-T) has acquired Glamis Gold‘s (GLG-T) net smelter return royalty on the Cerro San Pedro heap-leach gold-silver project in central Mexico.

Metallica paid US$7.25 million in all, including US$5 million it still owed as part of its deal to acquire Glamis’s half-stake in the project in early 2003. The Glamis royalty varied from 0.5% to 2%, increasing in US$25 increments over gold prices ranging from US$325 to US$400 per oz.

Construction continues at Cerro San Pedro, with the first gold pour slated for the fourth quarter. The heap-leach operation is expected to produce an average of 90,500 oz. gold and 2.1 million oz. silver annually for 8.3 years.

At last count, reserves stood at 61.1 million tonnes grading 0.59 grams gold and 24 grams silver, based on a gold price of US$325 per oz. and a silver price of US$4.62 per oz.

With Glamis’s royalty eliminated, Metallica has lowered its forecast for operating costs by US$19 per oz., to US$141 per oz., while estimated total cash costs have come down US$63 per oz., to US$152 per oz. The new cost figures are based on a gold price of US$425 per oz. and a silver price of $6.54 per oz. At those prices, the project generates a net present value of US$81.6 million (at a 5% discount) and an internal rate of return 50.1%.

Newmont Mining (NEM-N) retains a 1.95% gross revenue royalty on the project.