Goldcorp Inc. (GG, Financial) announced yesterday it agreed to sell its Los Filos mine in Mexico to Leagold Mining Corp. (TSXV:LMC.H, Financial).Â
According to the terms of the deal, Goldcorp will receive $279 million in cash and $71 million in ordinary shares of Leagold, plus approximately $88 million in retained tax receivables. The total value of the transaction is $438 million.
Leagold is a former gold exploration company that through a “buy and build’ approach is targeting to create a new mid-tier gold producer with operations in South America.
With regard to the sale of Los Filos, Goldcorp says it “expects to recognize a reversal of a 2015 impairment in mining interests at Los Filos of approximately $30 to $60 million on a pre-tax basis”.
At Los Filos, gold and silver are extracted through open pit and underground techniques. Approximately 70,000 tonnes per day of ore are processed at Los Filos through heap leaching.
Goldcorp disclosed 1.43 million ounces of gold and 7.83 million ounces of silver in proven and probable reserves. The gold grade of the mine is 0.76 g/t.
In 2015, a volume of 272,900 ounces of gold were produced at Los Filos for an all-in sustaining cost (AISC) of $1,488 per ounce, which was 66.4% higher than the company’s overall AISC per ounce. A volume of 270,700 ounces of gold were sold at Los Filos.
Revenue generated at Los Filos represents about 7.2% of the company’s total revenue and the gold production represents about 7.9% of Goldcorp’s total gold output.
With the sale of the Los Filos mine, Goldcorp divested a high-cost asset, acquired a significant stake in Leagold and increased its total liquidity to $650 million.
As of the most recent quarter, Goldcorp had approximately $383 million in cash on hand and securities that can be readily converted into cash and approximately $2.93 billion in total debt.
Goldcorp could use the cash from the sale to reduce its debt or develop other projects. It may not be a priority to reduce debt, however, since the total debt to equity ratio (mrq) is 21.96 versus an industry average of 54.58 and the interest coverage ratio (ttm) is 1.32. Since the latter figure is higher than one and higher than the industry average of 0.52, it means the company is capable of covering interest costs on its outstanding debt.
Goldcorp closed at $14.61 per share on Thursday and has gained 7.5% year to date. The gold stock has underperformed the VanEck Vectors Gold Miners ETF (GDX) by 0.63% year to date.
Goldcorp is trading at 0.93 times the book value and 11.05 times the Ebitda.
Leagold Mining closed at 63 cents (Canadian) per share Thursday on the TSX Venture Exchange with 68,500 shares traded.
The company has a market capitalization of 85.46 million Canadian dollars (approximately $65.12 million) and has approximately 135.65 million shares outstanding.
The company had CA$25.45 million in cash on hand as of the most recent quarter.
Disclosure: I have no positions in any security mentioned in this article.
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