Goldcorp Inc. (GG, Financial) (TSX:G, Financial) informed the stock markets through a news release published on its Web site on May 31 that it sold the Guatemalan Cerro Blanco – a gold and silver project – to the North American metallic exploration company Bluestone Resources Inc. (TSXV:BSR).
According to the terms of the deal, Goldcorp received cash of about $18 million plus the right to receive 1% of the total future volume of gold and silver ounces that will be produced by Bluestone Resources at Cerro Blanco mine as a net smelter royalty (NSR) return.
The deal that has been completed by Goldcorp and Bluestone Resources also envisages the Canadian gold producer’s right to receive a volume of 3,099,160 of the explorer’s ordinary shares. This volume of ordinary shares represents about 4.9% of Bluestone's total ordinary shares, issued and outstanding.
The transaction also provides Goldcorp with the option to purchase an additional volume of 258,805 shares of Bluestone Resources and the right to receive – within six months from Cerro Blanco’s first commercial production – an additional $15 million in cash .
As part of the completed transaction, Goldcorp also says that Bluestone has the right of first refusal regarding “the purchase of certain assets and equipment at the Marlin mine, also located in Guatemala.” Furthermore, Goldcorp adds that it has “received a $2 million nonrefundable deposit from Bluestone to be applied against future purchases.”
Cerro Blanco is located approximately 95 miles east of Guatemala City in an area of 174 hectares (429 acres) called Asuncion Mita, Jutiapa. It is not far from the borders of El Salvador and Honduras.
The area in which about 15,000 people are living is surrounded by good infrastructure that will make it easier to develop this project and bring it to completion. The target is to build an underground mine at Cerro Blanco where previous exploration activities and studies have already uncovered the potential to define a high-grade gold mineralization deposit.
Permitting activities and environmental studies have already started at Cerro Blanco where a technical document determining the amount of proven and probable gold reserves is expected to be completed before the development of Cerro Blanco from an open pit resource into a high-grade underground gold mine.
With this transaction, Goldcorp leaves to Bluestone Resources – a stage exploration company that follows a "buy and build" approach – the task to develop the mine. During the time that Cerro Blanco is developed into a producing asset, Goldcorp will be engaged in other projects that are deemed to “significantly” increase the company’s revenue.
One of these projects concerns Goldcorp’s recent decision to create a 50-50 joint venture with Barrick Gold Corp. (NYSE:ABX) that involves the purchase of a 25% interest stake in the Cerro Casale project from the biggest gold producer in the world. It is likely that Goldcorp will also use the cash from the sale of the Cerro Blanco project to Bluestone Resources.
Goldcorp is trading at $13.59 per share with a price-sales (P/S) ratio of 3.31 and a price-book (P/B) ratio of 0.86. The EV/EBITDA ratio is 10.21. Despite a rising gold price on the London Bullion Market, the gold stock has been downtrending since mid-April and lost 0.07% year to date. Goldcorp is trading at approximately the same levels as the start of the new year.
Investors should follow Bluestone Resources closely because when the Cerro Blanco project is completed and adequately promoted, the market value of the stage exploration company may have a positive impact on the stock market.
Disclosure: I have no positions in any stock mentioned in this article.
