Agnico Eagle slashes stake in Belo Sun Mining

Agnico Eagle Mines (TSX: AEM; NYSE: AEM) has sold 44.6 million common shares in Belo Sun Mining (TSX: BSX), slashing its stake in the company from 19.14% to 9.57%.

The gold major announced on April 20 that it had completed the sale, disposing of the shares at 33.5¢ apiece (the 30-day, volume-weighted average price of Belo Sun’s common shares on the TSX at the time of the trade), for proceeds of $14.9 million.

It plans to sell the rest of the shares (44.6 million) either to Belo Sun in an option over the next 60 days, or dispose of them “in an orderly fashion, as market conditions permit.”

Three days after Agnico’s announcement, Belo Sun said in a press release that four directors are buying a third of the shares Agnico Eagle held in the company, or 29.9 million shares, with the help of a $10-million loan from the company.

Director Stan Bharti bought 12.9 million shares; Peter Tagliamonte, the company’s current president and CEO and a director, 12.93 million common shares; director Denis Arsenault, 2.99 million shares; and Mark Eaton, the board’s executive chairman and former president and CEO from 2010 to 2014, 1 million shares.

Prior to the transaction, Bharti held no shares in Belo Sun and now owns 2.78%. Tagliamonte’s shares have risen from 0.21% before the transaction to 2.8% now; Arsenault’s holdings have grown from 0.026% before the transaction and now stand at 0.66%; and Eaton’s holdings have increased from 1.9% pre-transaction to 2.16%.

The $10 million the directors are borrowing from the company to buy the shares has an annual interest at the London interbank offered rate, plus 1%, payable on each one-year anniversary of the loans. The principal amount of the loan is due — together will all the accrued and unpaid interest — in 24 months.

Requests for comment from Belo Sun (by phone and email) were unanswered at press time.

One consultant to the mining industry, who asked not to be identified, was willing to weigh in on the Belo Sun transaction.

The field camp at Belo Sun Mining’s Volta Grande gold project in Brazil. Credit: Belo Sun Mining.

“I don’t think using cash from the company’s treasury to make loans to directors to buy shares is prudent use of capital,” he said. “On the other hand, if there were no other buyers and the alternative was for Agnico Eagle to sell in the market, that outcome would have been even worse for existing shareholders.

“The skeptic in me wonders what the recourse in the loan agreement is in the event the borrowers default,” he muses. “What happens if Belo Sun stock drops to 5¢ in the next 24 months? Will the borrowers really have to repay the loans, or could they default and just give the stock back to the company?”

Belo Sun owns the Volta Grande gold project in Brazil’s Para state.

In December 2017, the Federal Court of Appeals in Brasilia upheld a lower court judge’s ruling to suspend the project’s construction licence.

A year ago, on April 12, the judge from the Brazilian Federal Regional Court issued an interim order suspending the licence, because the Indigenous Affairs Agency of Brazil, known as Funai, had not approved Belo Sun’s indigenous studies.

After the federal court’s ruling, Tagliamonte said in a press release that while the company was disappointed with the decision, management was “confident that a resolution can be reached” and “will continue working with Funai to ensure that our indigenous study meets their requirements.” He added that the company will “explore all legal measures to appeal the decision.”

The Volta Grande property, 60 km southeast of the city of Altamira, stretches over 1,600 sq. km within the Tres Palmeiras greenstone belt.

Altamira is a major regional centre with a population of 150,000. It has a local airport and connects with the Trans-Amazonian Highway. The project also benefits from a hydroelectric dam 20 km north, which, according to the company, is the third-largest hydroelectric dam in the world. The company intends to bring power to the project through a 230-kilovolt power line.

A March 2015 feasibility study was based on proven and probable reserves of 116 million tonnes grading 1.02 grams gold per tonne for 3.79 million oz. gold. The study envisioned an open-pit mine with a 17.2-year mine life and average annual production of 205,000 oz. gold (260,000 oz. in years one to 10).

Initial capital costs could reach US$298 million after-tax, including pre-production and taxes. Using a base case of US$1,200 per oz. gold and a 5% discount rate, Volta Grande’s post-tax net present value was calculated at US$665 million and after-tax internal rate of return at 26%. All-in sustaining costs reached an estimated US$779 per ounce.

At press time, Belo Sun’s shares were trading at 30.5¢ within a 52-week range of 29¢ to 71¢.

The company has 466 million shares outstanding for a $153.7-million market capitalization.