Canada-based Capstone Mining Corp. (CS.TO) said Sunday that it has agreed to buy mining giant BHP Billiton Ltd.'s (BHP, BBL, BLT.L, BHP.AX) wholly-owned Pinto Valley copper mine and the associated railroad in Arizona for $650 million in cash.
Captsone Mining will acquire the mine and the associated San Manuel Arizona Railroad Co. or SMARRCO from BHP Copper Inc., a unit of BHP Billiton. SMARRCO owns and operates a 47 kilometer railway from San Manuel to Hayden, Arizona. The transaction is expected to close in the third quarter of 2013.
The Pinto Valley Mine is an open-pit copper mine located in the Globe-Miami mining district in Arizona, about 125 kilometres east of Phoenix. The mine is projected to produce 130 million to 150 million pounds of copper in concentrate and about 10 million pounds of copper cathode annually, along with by-product molybdenum and silver, for the first five years of production. The estimated cash cost of production for the first five years is about $1.80 per pound, net of by-product credits.
Darren Pylot, President and CEO of Capstone Mining said, "Pinto Valley represents a unique opportunity to acquire a mid-sized producing copper mine in a well-established and low-risk mining jurisdiction with a significant mineral resource. This acquisition gives Capstone our third producing mine with a long mine life and is consistent with Capstone's strategy of building an intermediate copper producer focused in the Americas."
Capstone Mining noted that the deal will immediately transform the company into an intermediate copper producer. The mine is projected to employ about 650 employees. BHP Billiton employees working at Pinto Valley and SMARRCO will become employees of Capstone as part of the transaction.
Capstone Mining currently owns and operates two producing copper mines. These include the Cozamin copper-silver-zinc-lead mine located in Zacatecas state, Mexico, and the Minto copper-gold-silver mine located in the Whitehorse Mining District, Yukon territory, Canada.
The Pinto Valley Mine restarted operations on schedule in December 2012 at a capital cost of $194 million, which will be fully funded by BHP Billiton. Capstone noted that the restart is progressing well and is on schedule to achieve a run-rate of over 50,000 tonnes per day by the end of 2013.
According to Capstone, the purchase price will be satisfied from its existing $200 million senior secured revolving credit facility and a new 2.5-year, $200 million senior secured reducing revolving credit facility, in addition to cash on hand. The acquisition agreement is not conditional upon financing.
Capstone Mining noted that the purchase price and financing structure will enable the company to maintain its financial flexibility, by retaining about $135 million in cash.
For Capstone, Scotia Capital Inc. is acting as its financial advisor on the transaction, while Blake, Cassels & Graydon LLP and Davis, Graham & Stubbs LLP are acting as its legal counsel.
Separately, BHP Billiton noted that the sale of Pinto Valley mine was consistent with its strategy and takes the transaction value of its divestments announced over the last twelve months to $5.0 billion.
CS.TO closed Friday's trading on the Toronto Stock Exchange at C$2.07, down C$0.06 or 2.82 percent on a volume of 892,120 shares.
In Monday's regular session on the Australian Securities Exchange, BHP.AX is trading at A$32.45, down A$0.13 or 0.40 percent on a volume of 1.77 million shares.
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