Estimated cash cost of equivalent gold ounce at $99 cannot be bad... Heck, if the price of gold goes back down to $200 an ounce these guys are still in pretty good shape.
After reading the WHT news, I applied my vast knowledge of the gold sector and concluded that I don't have a clue whether that is a good move for them or not. I like the idea of new reserves, of course, but if I am correct about the global economy over the next year or more, copper will not be a wonderful asset. I also worry about political stability in Argentina.
All I know to do is hope the management of WHT knows what they are doing, and it is certain that they know more than I.
Good morning ml,
I came across this article about the Alumbrera mine property in question. I think that increasing reserves in what promises to be an environment of rising gold prices is a sound biznez move and the 7 million reserve ounces might make this move a 'steal' if Au goes ultimately goes where I think it will.
BHPB dumps Alumbrera stake
By: Peter Gonnella 2003/03/26 Wed 17:56 ZE8
PERTH - As expected the world's largest diversified resources company BHP Billiton [ASX:BHP] has followed world number two Rio Tinto [ASX:RIO] and divested a minority stake in a major copper-gold operation in Argentina. BHPB announced today (Wednesday) that it had entered into an agreement to sell its 25 percent interest in the Alumbrera mine to Vancouver-based mid-cap gold producer Wheaton River Minerals [TSX:WRM] for US$180 million. Wheaton River had this month finalised the purchase of Rio's 25 percent share in Alumbrera plus 100 percent of a modest gold mine in Australia for US$210 million, paid for out of a C$333 million equity raising.
News of the BHPB sale comes at a time the MIM Holdings-Xstrata merger is back in the spotlight (see separate article). Both the BHPB and Rio deals could be interpreted as a mini-blow to Aussie-based MIM. As manager and 50 percent owner of Alumbrera, MIM has significantly improved the mine's operational performance over the past couple of years, and given that copper is one of the company's two leading EBIT generators and growth commodities, it may have been a natural acquisition proposition.
MIM suitor Xstrata might also construe the 50 percent now in Wheaton's hands as a missed growth opportunity, but perhaps MIM was blown out of contention by the approximate US$360 million acquisition cost (for the other half it didn't own) and is more focused on its capital efficient coal and copper growth profile at home. MIM might even be tempted to sell out of Alumbrera now that full ownership is not an option and if Wheaton or another party made an attractive enough offer.
Like its Rio purchase terms, Wheaton can defer part of the BHPB settlement. Not less than US$130 million was payable on settlement of the transaction, expected mid-year, and up to US$50 million could be held back until 30 May 2005, though on this occasion Wheaton will debt fund its share and forsake 12.5 percent of the 25 percent interest it's buying from BHPB to a third party to help get the deal over the line.
Both BHPB and Rio gained their Alumbrera stakes through takeovers three years ago of Rio Algom and North Ltd, respectively, and several analysts had flagged the prospect of this passive investment being given the flick by both global giants. "This is part of our continual portfolio management process," a BHPB spokesperson told Mineweb. "We assessed Alumbrera based on the strategic fit within our portfolio and economics of the (proposed) transaction and on this occasion decided on divestment."
According to MIM figures, Alumbrera produced about 200,000 tonnes of copper in concentrate and 760,000 ounces of gold, mostly in concentrate, in the fiscal year ended 30 June 2002 and 101,500t of copper and 354,000oz of gold in the December 2002 half. It has a forecast remaining mine life of about 10 years and is budgeted to average 180,000 tonnes and 540,000oz of gold per annum over the next five years. Latest published proven and probable reserves were around 2 million tonnes of copper and 7 million ounces of gold.
The six-year-old South American mine has started to show some of its potential under MIM's control, with EBIT contributions (for the full 100 percent) in the last completed FY of about A$240 million and in the December half of A$100 million. However, despite Alumbrera being at the lower end of the copper industry cash cost curve, thanks to the gold credits, the capital cost of developing Alumbrera was US$1.2 billion (versus a planned US$870 million). "Consequently the operation carries a high depreciation and debt burden which makes its full-cost position somewhat less attractive," said broker JB Were.
Gold output from Alumbrera will see Wheaton jump one place to sixth largest Canadian-based gold producer behind Barrick Gold, Placer Dome, Kinross Gold, Goldcorp and Cambior.
*** Wheaton River shares boosted by BHP mine deal ***
Wednesday March 26, 11:19 am ET
(Figures U.S. dollars, unless noted) TORONTO, March 26 (Reuters) - Shares of Wheaton River Minerals Ltd. (Toronto:WRM.TO - News) pushed higher in strong volume on Wednesday, after the Canadian miner upped its stake in Argentina's Alumbrera copper and gold mine.
Wheaton stock was up 5 Canadian cents at C$1.34 at mid-morning on the Toronto Stock Exchange (News - Websites). Volume was more than 5.6 million shares, making it the most actively traded issue on the market.
Vancouver-based Wheaton said on Thursday it had purchased an additional 25 percent stake in Alumbrera from Australia's BHP Billiton (Australia:BHP.AX - News), the world's largest diversified miner, for $180 million, with $50 million deferred until May 2005.
Wheaton said it expects to sell half the 25 percent stake to a third party. It said it will finance its 12.5 percent acquisition with debt and does not expect to issue additional equity.
Earlier this year, Wheaton bought a 25 percent interest in the mine from Rio Tinto Ltd. (Australia:RIO.AX - News).
In a morning research note, Sprott Securities analyst David Stein said the acquisition should ultimately push shares higher, particularly if gold prices improve.
"We have tested our valuation model amidst a number of possible outcomes, and we are confident that this acquisition adds value," the analyst wrote.
Stein has a "top pick" rating and a 12-month target of C$2.60 on the stock, implying a rise of 93 percent over the year.
Meanwhile, Research Capital Corp. agreed the deal will increase Wheaton River's exposure to the price of gold, while pointing out that Alumbrera will represent 58 percent of the company's underlying operating value.
As a result, analyst Barry Allan raised his full-year 2004 earnings estimate to 14 cents from 6 cents per share.
"We view this as an excellent deal for Wheaton River," Allan wrote in a morning research report.
He maintained a "buy" rating and a stock price target of C$2.00.
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