Following the news of March 28 that Goldcorp (GG, Financial) was acquiring Exeter Resource Corp. (XRA), a Canadian junior mining company engaged in the exploration and development of mineral properties in Chile, for about $185 million in shares, Goldcorp updated the market on June 7 about its offer’s acceptance by Exeter’s 74,992,886 shareholders.
The shareholders who accepted Goldcorp’s offer equal 80.5% of the junior mining company’s total shares outstanding.
Goldcorp has also informed the market about the extension of the tender period’s validity to June 20 so other shareholders – who haven’t yet adhered to the offer – can ask to have their shares exchanged with shares of the Canadian gold producer according to the rate of one share of Exeter for 0.12 shares of Goldcorp.
It is the intention of Goldcorp to acquire any of the shares of Exeter that may remain held by the Canadian junior mining company’s shareholders after the expiration of the tender period, either through a successive acquisition deal or a compulsory procedure.
After Goldcorp has completed the acquisition of Exeter, the Canadian gold producer can, together with Barrick Gold Corp. (ABX, Financial), take action according to a 50-50 joint venture that the two companies have reached a few weeks ago on the Caspiche project – Exeter’s flagship – a property that is only a few kilometers far from other metallic development projects such as the Cerro Casale project.
The Caspiche project lies on a well infrastructure served area – the Chilean district of Maricunga – and is not so far from other sizable mining operations because of the presence of other big operators in the area surrounding the project.
The Chilean Caspiche project is a mineral deposit that is characterized by a gold and copper porphyry system and is located in the Maricunga ore belt, one of the most prolific areas of ore deposits in Chile.
The project has the potential to bring a substantial contribution to the miner’s operations in terms of amount of gold and copper ounces that can be produced and in terms of life of mine.
The development of the Caspiche project provides the operator with three economically viable options as the ore body at Caspiche is characterized by an oxide gold zone about 200 meters deep/one kilometer length cap and by a core of high-grade gold-copper about 700 to 800 meters deep.
The first option provides the miner with the possibility to produce an average of 122,000 ounces of equivalent gold every year from the high-grade gold and copper surface using heap leaching techniques for about 10 years. This phase of mining at Caspiche will require a moderate amount of initial capex of $251 million according to Exeter’s 2014 Preliminary Economic Assessment document. The after-tax net present value, computed according to a 5% discount rate, is $252 million with a payback period of 3.5 years and an Internal Rate of Return of 28.5%.
The existence of another 23.5 million ounces of gold equivalent in the high-grade ore sulphide zone will provide Goldcorp with another two development options that the miner can combine with the aforementioned one. The first combined option envisages the production of 289,000 ounces of equivalent gold every year over a mine life of 18 years. The second combined option contemplates the production of 344,000 ounces of equivalent gold every year over a mine life of 42 years. The amount of initial capex required by the development project increases to $371 million and $387 million in the first and second combined option. The internal rate of return decreases to 22.7% and to 17.6% as the payback period increases to 6.6 years and to 8.0 years. The other figures can be found in the document.
Of course, these figures are indicative only, since the exploration team must undertake additional activities on the area which results will be supportive for the preparation of a prefeasibility study first and feasibility study afterward.
When the operator will make a feasibility study available to shareholders, we will have more precise figures about the economic viability of the Caspiche project and its contribution to the miner’s economics.
The preconditions for building a prolific asset seem to be there plus the fact that the project is located in a country that is characterized by a friendly mining jurisdiction.
Goldcorp is currently trading at $13.69 per share with a price-sales (P/S) ratio of 3.34, a price-book (P/B) ratio of 0.86, a price-earnings (P/E) ratio of 46.88.
Disclosure: I have no positions in any stock mentioned in this article.
