Yamana Gold cleans up balance sheet with $1-billion sale of Brazilian mine to Lundin Mining

Yamana Gold cleans up balance sheet with $1-billion sale of Brazilian mine to Lundin Mining

- in Investing

When the management teams at Yamana Gold Inc. and Lundin Mining Corp. have a look at copper and gold, both experience a rising price environment ahead.

Despite the shared positive outlook, it turned out copper-focused Lundin Mining Corp. that announced on Monday it could plunk down $1 billion in cash to buy the Chapada copper-gold mine in Brazil from gold-focused Yamana, which needs cash to lessen its debt load.

In household goods the offer mirrors analysts’ optimistic predictions about copper over a more hazy outlook on gold equities, even the face of your potential U.S. recession, along with the potential for an international economic slowdown amid persistent trade disputes. That’s to some extent because analysts see an emerging copper supply gap, while no matter what metal prices, many investors are eliminating Canadian gold mining companies since they repair their balance sheets.

“This might be an entire cleanup (on the balance sheet),” Peter Marrone, executive chairman and founding father of Yamana, told the Financial Post. “And from now on we’re willing to progress, and all the discussions about getting in front of the leverage and debt at Yamana should be carried out.”

The company has US$1.6 billion in net debt, and Marrone claimed it offers to apply the entire hails from the Chapada mine sale to lower that number. Investors remain unimpressed with Yamana Monday, sending its stock 3.5 per cent lower to $3.30 around the Toronto Stock market.

Meanwhile, Lundin jumped 8 per cent to $7.38.

Marie Inkster, president and us president of Lundin, said her company had been thinking about purchasing a copper mine since she started last October — not long as soon as the company lost a quotation to acquire a planned copper mine in Serbia.

“I don’t think there is be a great deal at a really good copper asset,” Inkster told the Financial Post, saying the amount was “very fair.”

Whereas Lundin has been acquisition mode lately, Marrone said Yamana’s board is focused on committing to a assets to extend gold production rather then buying anything.

Yamana states it might add not less than 150,000 ounces of annual gold production by expanding its existing five mine complexes, located throughout Canada and The philipines.

“The kick off point for people is really what we’ve got from the portfolio,” said Marrone.

Before announcing the sale of Chapada, expected to near the coast the third quarter in 2010, this company stated it aims to generate 940,000 ounces of gold and 120 million pounds of copper.

Chapada a year ago produced 121,000 ounces of gold and 129 million pounds of copper, and contains nearly mine life span of 28 years.

Last May, the provider announced expansion plans that required phased investments of US$9 million, $140 million and $100 million.

On a conference call with analysts, Marrone said the organization might have struggled in making capital expenditures to hold Chapada while committing to the remainder of its portfolio making debt payments.

“It will happen to be constrained, the bottomline is,” he was quoted saying, adding value of Chapada would decline with no investment.

That created an impetus to sell Chapada, and Marrone said the board thought about options and chatting with buyers last fall.

S&P Global Ratings a week ago held “its gold price assumption the same” through 2021, citing the uncertainty in U.S. loan rates, slower economic growth and perils of a trade war. Even so it raised assumptions for copper prices using a supply deficit likely begin this coming year and grow through 2021.

“The world thinks copper prices incorporate some room for additional upside if deficits widen,” the organization analysts wrote on April 11.

Yamana’s sale also allows it to unload a mine in Brazil — even though it still holds another mine in america — months after Vale S.A.’s Brumadinho iron ore mining tailings dam collapsed in January within a different a part of the country. That collapse killed many people plus untold amount of livestock animals, destroying houses and made environmental disaster rolling around in its wake.

Marrone said this “disaster” likely limited the amount of companies willing to consider buying Chapada.

Indeed, from a conference call Marie Inkster, leader of Lundin, said the corporation closely studied the tailings storage dam facility at Chapada during its required groundwork.

Her company has long been for the prowl for any copper mine, since its unsuccessful bid to acquire Nevsun’s planned copper mine in Serbia last summer.

Chapada could bring its estimated copper production in 2019 up 263 million pounds of copper, an adding 26 per-cent to mines in Europe along with the Americas.

As area of the deal to buy Chapada, Lundin can be on the hook for one more US$125 million in payments to Yamana, in line with the average worth of gold throughout the next five-years, plus an additional US$100 million payment depending if it builds a roaster which would optimize the performance in the mine.

Steve Gatley, vice-president of technical services for Lundin, said a real difference in outlook on Chapada depends upon the account balance sheets: “We perhaps won’t have the funds constraints that Yamana would,” he was quoted saying.

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