Goldcorp Sells Los Filos to Leagold Mining

Miner will likely use proceeds for purchase of 25% stake in Barrick Gold project

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Goldcorp Inc. (GG, Financial) (G, Financial) informed the stock markets through a news release published on its website April 7 that it sold the Mexican Los Filos mine to the Canadian former gold exploration company, Leagold Mining Corp. (TSXV:LMC).

According to the terms of the deal, Goldcorp received about 25.3% of the issued and outstanding ordinary shares of Leagold, amounting to a total of 34,635,091 ordinary shares of the ex-gold exploration company plus cash of $250 million.

Goldcorp also received from Leagold a short-term promissory note worth $29 million that is due by the former gold explorer to the Canadian gold producer as soon as the competition commission in Mexico has approved a subsequent stake of Leagold’s equity financing. Following its completion, Goldcorp’s stake in Leagold will decrease from 25.3% to 22.9%.

The former gold explorer must pay Goldcorp what it promised within 120 days of the transaction’s closing.

In addition, Goldcorp will cash in about $100 million of Leagold’s account receivables.

David Garofalo, Goldcorp’s president and CEO, commented, "The divestiture of Los Filos unlocks further value and allows us to focus on our core camps."

Goldcorp will likely use the cash from the sale to fund the purchase of a 25% interest stake in the Cerro Casale project from Barrick Gold Corp. (ABX, Financial), concerning the decision to create a 50-50 joint venture with the world’s biggest gold producer.

Garofalo added, "We look forward to participating in the future success of Leagold through our significant ownership interest."

With this divestiture, Goldcorp unloads its portfolio with one of the costliest assets: at Los Filos, the Canadian miner produced gold at an all-in sustaining cost (AISC) of $1,488 per ounce, which was approximately 66.5% higher than the company’s overall AISC per ounce.

At the same time, Goldcorp leaves to Leagold, which follows a "buy and build" approach in the aim to become a midtier gold producer, the task to develop a mine which still has an economic potential of 2.88 million ounces of gold and 22.79 million ounces of silver in mineral resources estimated according to a high confidence degree and 7.14 million ounces of gold and 81.49 million ounces of silver in mineral resources estimated with a reasonable confidence level.

The precious metal is still extracted through open pit and with underground techniques. About 70,000 tonnes of ore can be processed at Los Filos per day through heap leaching.

Goldcorp closed the week 14 at $14.75 per share with a price-sales (P/S) ratio of 3.66 and a price-book (P/B) ratio of 0.94. The EV/EBITDA ratio is 12.51. The gold stock gained 8.46% year to date.

Disclosure: I have no positions in any stock mentioned in this article.

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