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Mining News: Thompson Creek agrees to buy B.C. junior Savvy moly producer moves to diversify metals output and assets; capitalizes on high gold prices to fund Mount Milligan development Rose Ragsdale For Mining News
Thompson Creek Metals Co. Inc. and Terrane Metals Corp. said they have completed a definitive agreement for the Denver-based molybdenum producer to purchase Terrane Metals with cash and stock valued at about C$650 million.
The deal, which won approval of both Thompson Creek and Terrane’s boards of directors, will be proceed under a court-approved plan of arrangement under British Columbia law.
Thompson Creek, meanwhile, signed over to Royal Gold Inc. one-quarter of life-of-mine gold production from Terrane’s most advanced asset, the Mount Milligan Copper Gold Project in central British Columbia.
Located 155 kilometers, or 96 miles, northwest of Prince George, the project contains proven and probable reserves of 482.4 million metric tons grading 2 percent copper and about 0.4 grams per metric ton gold for contained metal of 2.1 million pounds copper and 6 million ounces of gold. The project also boasts a larger measured, indicated and inferred copper and gold resource.
Under the terms of the gold stream transaction, Thompson Creek will receive staged cash deposits aggregating US$311.5 million; US$226.5 million of which will be paid at the closing of the arrangement; and $85 million to be paid during mine construction. The deposits will be offset against Royal Gold’s purchase of gold under the agreement. Until the Mount Milligan deposit is completely reduced, the price for gold will be the prevailing market price. For each of the first 550,000 ounces of gold delivered to Royal Gold, Thompson Creek will receive cash per ounce equal to the lesser of a cash production payment of $400 or the prevailing market price. To the extent that the prevailing market price exceeds $400 per ounce, the deposit will be reduced. For each ounce of gold delivered thereafter, Thompson Creek will receive the lesser of $450 or the prevailing market price in cash, with any excess purchase price used to reduce the deposit. Once the deposit is reduced to nil, only the cash portion of the purchase price will be payable.
Strategic acquisition “The acquisition of Terrane fits well in our strategic growth plan, providing us with clear production and revenue growth, while diversifying our commodity exposure, all in a project with mining and milling processes, and a regulatory environment, with which we have considerable experience,” said Thompson Creek Chairman and CEO Kevin Loughrey. “We are utilizing a portion of cash on our balance sheet and our current cash generating capacity from existing operations, while capitalizing on financing opportunities available through the gold stream transaction. The upside from our existing asset base has been retained for our shareholders, while structuring a transaction that we believe will be highly accretive on a cash flow basis once Mount Milligan is in production. We believe with our Endako expansion, and now the Mount Milligan project, we have substantially improved Thompson Creek’s growth profile.”
Terrane President and CEO Rob Pease also praised the proposed acquisition.
“(Thompson Creek’s) financial depth, combined with the Royal Gold transaction, provides a clear path to complete funding of Mount Milligan. Combined with their proven development and operating capabilities, this transaction has the opportunity to unlock the value of Mount Milligan for all shareholders. Thompson Creek is committed to responsible development and mining and has an excellent track record of working cooperatively with host governments and communities wherever they operate, including British Columbia,” Pease said.
Good deal for shareholders Terms of the deal call for shareholders of Vancouver, B.C.-based Terrane Metals Corp. to receive C90 cents in cash and a little more than half a common share of Thompson Creek stock for every Terrane share. The consideration implies an offer value of C$1.41 per Terrane share based on Thompson Creek’s July 14 closing price on the Toronto Stock Exchange of C$9.90 per share. It represents a premium of about 35 percent based on the volume weighted average trading prices of Thompson Creek and Terrane on the TSX and TSX Venture, respectively, for the 20 trading days that ended July 14, and a premium of 21 percent to Terrane’s closing price of C$1.17 per share on the same day.
Chuck Jeannes, president and CEO of Goldcorp Inc., Terrane’s majority shareholder with about 58 percent of the junior’s outstanding equity, said the deal puts “meaningful cash” in the pockets of Terrane shareholders, while providing an opportunity to participate in the future success of Mount Milligan through a combined, diversified, high growth base metals producer.”
Terrane’s board of directors determined that the proposal is fair to its shareholders and in the best interests of the company
The transaction also drew unanimously approved from Thompson Creek’s board based on, among other things, an oral fairness opinion from RBC Capital Markets.
Among benefits to Thompson Creek shareholders:
Mount Milligan, a construction-ready growth project, offers diversification beyond Thompson Creek’s current asset base of primary molybdenum deposits with the pro forma production profile providing for strong contributions from each of molybdenum, copper, and gold subsequent to the startup of Mount Milligan, which is expected in 2013;
The gold stream transaction with Royal Gold should allow shareholders to immediately capture value from gold production while providing funds for mine construction, retaining full leverage to base metal production and maintaining significant gold by-product credits;
The combined business should have the ability to finance its strong combined project pipeline without equity dilution, which would generate significant production growth by 2013 when the Endako expansion and Mount Milligan projects are expected to be completed; and
Going forward, Thompson Creek should have avenues for future exploration and growth with a broader suite of earlier stage projects, including Mount Emmons, Davidson and Berg that can be prioritized optimally for development and value creation.
Terrane shareholders, meanwhile, will benefit from participation in a well-funded, diversified base metals producer, including ongoing exposure to Mount Milligan, through the share component of the offer; access to Thompson Creek’s proven development and construction expertise, and significantly greater financial resources to build and operate Mount Milligan; and an attractive premium with a meaningful cash component.
Terrane also has highly qualified and experienced management, and many of these professionals are expected to be retained by Thompson Creek.
Mount Milligan plans Upon closing, Thompson Creek will assume full ownership of Mount Milligan, which located about 150 kilometers, or 93 miles, northeast of its Endako Mine.
Mount Milligan is being developed as a conventional truck-shovel open pit mine with a 60,000-metric-tons-per-day copper flotation process plant with tailings storage facility, plant ancillary facilities, 92-kilometer, or 57-mile, power transmission line and a 600-person construction camp. Average annual production over its 22-year estimated mine life is expected to be 81 million pounds of copper and 194,000 ounces of gold. The project is expected to provide about 400 direct permanent jobs and significant long-term economic benefits for the region.
Thompson Creek said it intends to fund the remaining Mount Milligan construction costs over the next 2 1/2 years or so with a combination of pro forma combined cash balances, as adjusted for the April 16 Terrane equity offering of about US$178 million, the US$311.5 million of proceeds from its proposed gold stream transaction with Royal Gold, up to US$250 million of debt finance in the form of equipment financing and a potential bank credit facility, internal cash generation, and potential warrant proceeds including Thompson Creek’s existing warrants due in 2011 (potential proceeds of C$220 million) as well as the Terrane warrants due in 2011 and 2012 that will remain outstanding (potential net proceeds of about C$27 million).
In June Terrane initiated the first phase of construction with a road contract and entered into a letter of intent with AMEC Americas Ltd. and Fluor Canada Ltd. to provide engineering, procurement and construction management services. Purchase orders have been made for long lead time items for the process plant and power supply equipment. Terrane said the first six years of the 22-year mine plan were designed to accelerate the extraction of near-surface and higher-grade gold reserves with production forecast to average 262,100 ounces per year at a cash cost, net of a copper credit, of negative US$8 per ounce.
The first phase of a 30-month construction program is already under way. Current development timelines are targeting commissioning of the mine and mill complex in 2013.
Other valuable assets In addition to Mount Milligan, Terrane has a number of other earlier stage mineral projects, the most substantial of which is the Berg copper-molybdenum-silver deposit, located in British Columbia about 150 kilometers, or 93 miles, southwest of Endako, and a similar distance from Thompson Creek’s Davidson project. Berg is a porphyry deposit with a current defined measured resource of 53.3Mt at 0.48 percent copper, 0.03048 percent moly and 4.5 grams per metric ton silver and indicated resource of 452.7Mt at 0.2848 percent copper, 0.03848 percent moly and 3.7 g/t silver for a total measured and indicated resource of 506.0Mt at 0.3048 percent copper, 0.03748 percent moly and 3.8 g/t silver totaling 3.3 billion pounds of contained copper, 412M pounds of contained molybdenum and 61.4M ounces of contained silver. The mineral resources were calculated at 0.3048 percent copper equivalent cut-off grade.
Other Terrane assets include an interest in the Howard’s Pass Joint Venture which retains rights to option, net profit interest and net smelter return payments from Selwyn Resources Ltd.’s huge zinc, lead and silver deposit in Yukon Territory. Terrane also is a minority joint venture partner with Laurentian Goldfields in the Maze Lake gold project in Nunavut.
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