The latest target of
Since mid-2002, Wheaton has spent some US$491 million in cash, shares and debt to transform itself into a low-cost, mid-tier producer. More recently, the company added the advanced Los Filos deposit to its portfolio, prompting it to increase its 2006 production projection to 700,000 oz. gold-equivalent and its cash cost estimate to US$140 per oz.
Now, Wheaton has set its sights on privately held EBX Gold, owner of the advanced Amapari project in Brazil’s Amapa state. The price tag: US$120 million in cash, shares and debt, or US$86 per reserve ounce.
“Wheaton River has acquired one of the best undeveloped gold assets in the Americas,” Chairman Ian Telfer states in a release. “Along with our recently acquired Los Filos project in Mexico, Wheaton River has become not only a substantial, low-cost producer, but also a premier growth company.”
Amapari is an Archean iron-formation replacement deposit in which 2.7 million oz. have been outlined in 28 million tonnes. Of that, 9.8 million tonnes grading 2.3 grams per tonne have been proved up in the oxide zone and 4.9 million tonnes grading 2.5 grams, in an underlying sulphide zone, for an overall reserve count of 1.4 million contained ounces.
Wheaton plans to develop the project in two phases, starting with the oxides and ending with the sulphides. The first, for which a construction permit has been obtained, entails a heap-leach, open-pit operation that will cost US$70 million to develop.
Funding will be provided by existing cash and project debt.
Production is expected to begin in late 2005 and average 160,000 oz. in each of five years, though Telfer expects upwards of 188,000 oz. in each of the first two years.
Life-of-mine cash costs are projected at US$136 per oz.
The second phase, which will include the development of a decline, is expected to cost US$50 million to complete. According to EBX’s prefeasibility study, the sulphide reserve can support annual production of 135,000 oz., though for how long remains to be worked out.
Cash costs during this phase are anticipated to be US$190 per oz.
Wheaton also highlights Amapari’s exploration potential, particularly its inferred resources and a magnetic anomaly that extends 7 km southeast from the known deposit. Several geochemical anomalies and workings coincide with the geophysical anomaly, and future exploration there and in the deposit proper is expected to extend the mine life.
The agreed price is more than six times the US$18.2 million EBX itself paid for Amapari earlier this year, an amount that vendor
Elaborating on Wheaton’s deal during a recent quarterly conference call, Telfer noted that the valuation incorporates 33 million shares and 21.5 million Series B warrants. Only US$40 million will actually change hands, though US$15 million represents EBX’s obligation to AngloGold and is included in the capital cost of the first development phase.
‘Bigger picture’
“I know some analysts like to calculate the purchase price based on what’s proven and probable at the time, but we of course have to look at the bigger picture,” said Telfer. “So we used two million ounces to calculate what we paid on an acquisition cost, what it will be on a capital cost per ounce, and taking into account the operating cost of the surface material, which will be in the US$130s.”
He added: “This is a project in which Anglo American spent more than US$30 million over ten years and did extensive metallurgical testing, so we have a high confidence level in how we expect it to perform.”
(For comparison, in mid-2002, launching its acquisition spree, Wheaton paid US$100 per reserve ounce for three gold-silver mines in Mexico. The smallest of the so-called Luismin operations was sold earlier this year for US$5 million, and the company has since had to issue another US$23.4 worth of shares to the original vendor. The remaining mines are now the company’s second-biggest money-maker, next to the partially owned Alumbrera mine.)
By all accounts, the market seems to agree with the Amapari acquisition: after knocking 19 off Wheaton’s shares on the day the deal was announced, it pushed them back up the next day, and by presstime, they had tacked on another 44 for an overall gain of 14.5%.
The deal is expected to close in mid-December.
Meanwhile, Wheaton has recorded a profit of US$14.7 million (or US3 per share) on sales of US$63.1 million for the three months ended Sept. 30, compared with earnings of US$949,000 (or US1 per share) on US$15.8 million in the similar period of 2002.
Cash flow also soared, topping US$31.5 million in the recent period versus an outflow of US$2.7 million last year. Both figures include changes to non-cash working capital.
“This is our seventh profitable quarter,” said Telfer, “and I think that, in all instances, since we came into production in the middle of 2002, we have met or exceeded some of the analysts’ guidelines in terms of earnings, cash flow and production. We would like to think we can continue that going forward, but it’s becoming a taller and taller order.”
Newfound production
The financial improvement reflects newfound production from the Alumbrera mine in Argentina and the Peak mine in Australia. Wheaton acquired a 25% interest in the former and a full interest in the latter earlier this year and has since increased its stake in Alumbrera to 37.5%.
Attributable production from Alumbrera came to 59,000 oz. gold and 18,000 tonnes copper in the recent quarter. Copper sales cover all the operating expenses at the mine, so cash costs were negative US$132 per oz. in the quarter.
The Peak mine added 33,600 oz. gold and 640 tonnes copper to the company’s quarterly output. Cash costs there averaged US$223 per oz.
Wheaton also pulled 28,300 oz. gold and 1.5 million oz. silver from the Luismin operations. The metals were produced at a cash cost of US$180 per oz., net of silver credits, essentially unchanged from last year.
In all, Wheaton cranked out 141,800 oz. gold-equivalent and 18,700 tonnes copper in the recent quarter at a total cash cost of US$98 per oz., net of silver and copper credits. Of those amounts, 15,700 oz. gold-equivalent and 5,900 tonnes copper were sold after the quarter’s end and were thus accounted for as inventory.
For the first nine months of the year, Wheaton earned US$29.8 million (US8 per share) on sales of US$109.2 million, which compares with earnings of US$3 million (US2 per share) on US$16.8 million in the similar period of 2002. Cash flow jumped to US$62 million from negative US$1.1 million, when changes to non-cash working capital are considered.
On Sept. 30, Wheaton had US$138.6 million in working capital and US$116 million in long-term debt. Among the company’s current assets is US$128 million in cash or marketable securities, more than enough to cover the current portion (US$36.4 million) of the long-term debt.
Wheaton currently has 517 million shares outstanding.
Be the first to comment on "Wheaton River ponies up for Amapari"