Cameco bundles gold assets, plans Centerra IPO (January 05, 2004)

Anticipating heated interest thanks to a surging gold price, Cameco (CCO-T) has detailed plans to bundle its gold assets and offer shares in newly created Centerra Gold.

Initially, Cameco will hold 67% of Centerra after transferring its one-third interest in Kumtor Gold (which owns the like-named gold mine in the Kyrgyz Republic) and other gold assets. The Kyrgyz government will hold the remaining 33% of Centerra after chipping in its 67% stake in Kumtor Gold. The government has a 30-day option to take another 2% of Centerra from Cameco.

Kumtor is slated to produce about 610,000 oz. of gold at an average cash cost of about US$220 per oz. during 2004. At the end of 2002, Kumtor’s proven and probable reserves were pegged at around 25.2 million tonnes running 4.27 grams gold per tonne, based on a gold price of US$300 per oz.

The open-pit operation is expected to continue until about 2008, and the company must notify the government of its intentions to continue underground two years before open-pit mining stops, otherwise it surrenders its underground rights.

The deal will also see Cameco contribute its 56% interest in Australian-based explorer AGR, which owns 95% of the Boroo gold mine, 110 km northwest of Ulaanbaatar, the capital of Mongolia.

Construction at Boroo was about 95% complete at the end of the third quarter of 2003; the first gold pour is expected in the first quarter of 2004. At full steam, Boroo is expected to churn out 210,000 oz. of gold at an average cash cost of around US$170 apiece. The project carries a US$75 million price tag.

At the end of August, probable reserves at Boroo stood at 10.3 million tonnes running 3.52 grams gold. The estimate is based on a gold price of US$325 per oz.

Centerra will also hold a 73% interest in the Gatsuurt exploration licences, about 35 km from Boroo, plus Cameco’s 62% interest in the advanced REN exploration project 2.5 km north of the Meikle and Rodeo underground mines in Nevada’s Carlin trend. Barrick Gold (ABX-T) holds the remaining interest at REN. Centerra’s assets will include some US$130 million worth of loans that Cameco previously advanced to the Kumtor and Boroo mines.

Cameco will also continue to guarantee the 480,000 oz. of gold hedged at both mines, in addition to Kumtor Gold’s US$17 million in senior debt, while Centerra establishes itself. The hedged ounces had a mark-to-market value of minus US$46 million at the end of 2003.

Essential to the deal area a series of agreement between the Kyrgyz government and Cameco, which include a 10-year tax stabilization period, during which taxes on the Kumtor operation cannot be increased. The tax indemnity previously granted to Cameco is not transferred under the new deal. The government will ensure a stable investment regime in the country.

The government will have one representative on Centerra’s board as long as it maintains a minimum stake in the company. It has agreed to do so for at least five years.

Another key to the transaction is Cameco’s plan to launch a public offering of Centerra shares, which it will seek to list for trade on the Toronto Stock Exchange. Non-Cameco shareholders of AGR will be offered Centerra shares in exchange for their AGR shares by early March.

Closing of the transaction, planned for the second quarter of 2004, is subject to an agreement for the public offering, conditional listing of Centerra shares on the TSX, and the consent of several third parties, including some financial institutions.

Shares in Cameco, the world’s largest uranium supplier, had yo-yoed themselves 20 higher to $76.15 in late afternoon trading in Toronto following the news on Jan. 5.