In a move aimed at cleaning up its balance sheet and financing its overseas projects,
The mid-tier producer is selling 49.9% of its interest in five gold mines to
“We obviously had to address TVX’s immediate financial issues, and I’m confident we are creating a dynamic new player for the Americas,” said company chairman Eike Batista at a joint meeting in Toronto. He praised Normandy’s financial strength and operational capabilities, and said the partnership ensures the continued development of the Olympias deposit at Kassandra, while enabling TVX to expand.
The announcement follows several weeks of similar but unfruitful talks with
The deal, which is subject to final due diligence and regulatory and other approvals, calls for the formation of TVX Normandy Americas (TNA). The new company would oversee each company’s existing projects and any future ones in North and South America. TVX would own a 50% interest plus one share in the joint venture, leaving Normandy with 50% less one share.
Batista would become TNA’s executive chairmain and Robert Champion de Crespigny, who currently sits as Normandy’s executive chairman, would become vice-chairman. The latter would also join the board of TVX.
TVX brings to the table five mines in which it holds various interests: La Coipa (50%) in Chile; Crixas (50%) and Brasilia (49%) in Brazil; and New Britannia (50%) and Musselwhite (32%) in Canada. Combined, these provided the company with 499,100 oz. gold-equivalent in 1998 at a total cost of US$287 per oz. They host combined reserves of 5.64 million oz. gold-equivalent.
Also attached is a sizable resource base that boosts the company’s total mineral inventory to 10.48 million oz. gold-equivalent. Included in the resource are 2.68 million oz. outlined at the 50%-owned Gurupi project in Brazil. The remaining interest in that project is held by
For its interest, Normandy will pay TVX US$180 million in cash immediately following the deal’s closure, as well as fund up to three years of that company’s share of acquisitions costs incurred by TNA. The loans are based on a sliding scale, whereby TVX’s eligible interest would decline and its acquisition cost increase over a 3-year repayment period.
Furthermore, the major will provide TVX with a US$150-million line of credit and subscribe for US$24 million worth of treasury shares. The credit will consist of US$100 million for general purposes and US$50 million for new acquisitions in the Americas, or as TVX may determine. The credit is secured against TVX’s shares in TNA and bears interest at LIBOR (London Interbank Offer Rate) plus a commercial margin, with one-half due in five years and the balance in the following year.
Aside from financial backing, Normandy offers valuable technical expertise. The major holds various interests in a wide range of mineral operations and ranks as the world’s seventh-largest gold producer, having cranked out just shy of 1.2 million attributable ounces in the 9-month period ended March 31.
Although the joint venture adds relatively little to this, it gives Normandy an immediate foothold in the Americas, particularly the Southern Hemisphere.
“Normandy very much wants to replicate its growth pattern in Australia,” said de Crepsigny. “We wanted to focus on low-cost assets and on mines that we could see going forward into the future.”
Completion of the transaction would boost the major’s resource and reserve base to some 50 million oz. and, with expansions at existing projects, boost its annual gold output to just under 2 million oz.
For TVX, the deal adds much-needed cash, allowing it to eliminate US$69 million in existing credit and US$17 million in other debt. As well, some funds will go toward paying this year’s interest on US$250 million in gold-linked convertible notes and to advancing Kassandra.
Kassandra is the company’s largest project under development, consisting of the Olympias and Skouries deposits. Underground reserves at the former are pegged at 9.1 million tonnes grading 8.7 grams gold per tonne, 138 grams silver, 4.6% lead and 5.8% zinc, plus 300,000 tonnes in a pyrite stockpile grading 22.9 grams gold and 24 grams silver and 2.4 million tonnes of tailings grading 3.4 grams gold and 14 grams silver. Skouries hosts 129.5 million tonnes grading 0.88 gram gold and 0.55% copper.
In 1998, both were deemed feasible by Kvaerner Metals at current metal prices. Combined capital costs were pegged at US$465 million, though Olympias will be developed first, and its study is being revised to reflect the combination of pressure-oxidation and bio-oxidation techniques. (This was necessary to satisfy government permitting requirements.)
Construction at Olympias is expected to start in early 2000, with production following two years later. The original feasibility study estimated capital costs at US$225 million, of which 35% could qualify for economic-development grants from the European Union. The company has already received a commitment for US$170 million from an international bank, subject to certain conditions, and plans to spend US$38 million this year from funds raised from the joint-venture deal.
Production is estimated at 210,000 oz. gold and 2 million oz. silver in each of the first five years of full output, with Skouries adding a further 200,000 oz. gold and 35,000 tonnes copper annually once it is brought on-stream. Cash costs at Olympias are estimated at US$100 per oz. gold, while those at Skouries are pegged at US$25 per oz. gold. Both figures include byproduct credits.
By year-end, TVX expects to have US$248 million in cash and credit.
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