Fresnillo and Newmont Mining announced an agreement in mid-September whereby Fresnillo would acquire Newmont's 44% interest in their Penmont joint venture in Sonora, Mexico, for $450 million in cash. Fresnillo is 56% owner and operator of the joint venture.
Assets included in the agreement are the Herradura, Noche Buena, and Soledad-Dipolos open-pit, heap-leach, Merrill Crowe mines; the Mega Centauro and Centauro Deep advanced exploration projects; and a number of other exploration prospects.
The transaction was subject to Fresnillo shareholder approval. Assuming satisfaction or waiver of all conditions, Fresnillo expected the acquisition to be completed by early October.
Fresnillo is a major silver mining company, with substantial gold production from its silver mines. The Penmont joint-venture assets have gold as their most important product and will add to the company's gold production profile.
In 2013, production attributable to Fresnillo from the Penmont mines was 148,200 oz of gold and 167,000 oz of silver from Herradura, 60,800 oz of gold and 28,000 oz of silver from Noche Buena, and 26,500 oz of gold and 17,000 oz of silver from Soledad-Dipolos. Mining and beneficiation were suspended at Soledad-Dipolos in mid-year 2013 as a result of ownership issues, and the suspension remains in effect.
Fresnillo expects Herradura to produce an average of 350,000 oz/y of gold and Noche Buena to produce an average of 165,000 oz/y of gold from 2014 to 2019. Herradura has been in production since 1997 and has total gold reserves of 2.7 million oz; Noche Buena has been in production since 2012 and has total gold reserves of 1.1 million oz.
Fresnillo has produced a preliminary assessment for the Mega Centauro and Centauro Deep projects, both of which are expected to enter development in 2015, ahead of first production in 2016 and 2017, respectively. The Mega Centauro project is expected to produce an average of 200,000 oz/y of gold over a mine life of 12 years, while the Centauro Deep project is expected to produce an average 225,000 oz/y of gold over a mine life of 10 years.
Capital investments for the Mega Centauro and Centauro Deep projects are estimated at $150 million and $365 million, respectively, resulting in the potential to generate a combined IRR for both projects in the low- to mid-teens at current gold prices. However, further analysis and exploration work are required before a feasibility study can be presented to the Fresnillo board for final approval.
Fresnillo CEO Octavio Alvídrez said, "Acquiring full control of the Herradura and Noche Buena mines and the key exploration assets in the JV should enable us, with our current operations, to increase our target of reaching 500,000 oz/y of attributable gold production by 2018 to 750,000 oz."