Yamana Gold has entered into a definitive agreement to sell its Mercedes underground gold-silver mine in Sonora, Mexico, to Premier Gold Mines, a Canadian junior company headquartered in Thunder Bay, Ontario. Pursuant to the agreement, Yamana will receive cash and equity securities valued at $140 million at the time of the negotiations, with cash accounting for $122.5 million of the total.
The transaction was expected to close on or about September 30. Yamana will to use the proceeds from the transaction to reduce its net debt.
The agreement also calls for Yamana to receive a 1% net smelter return on Mercedes production, to become payable commencing on the earlier of 1) six years from closing of the transaction or 2) the date upon which Mercedes achieves cumulative production of 450,000 gold equivalent oz.
The Mercedes mine has been in production since 2011 and is currently mining three underground gold-silver deposits. From 2012 to 2015, the mine produced an average of about 109,000 oz/y of gold. The mine currently has mineral reserves of 333,000 oz of gold at a grade of 4.33 g/mt and 3.75 million oz of silver at a grade of 48.8 g/mt; measured and indicated mineral resources, exclusive of mineral reserves, of 537,000 oz of gold grading 3.36 g/mt and 5.8 million oz of silver grading 36.5 g/mt; and inferred mineral resources of 239,000 oz of gold grading 3.45 g/mt and 2 million oz of silver grading 28.9 g/mt.
Premier Gold currently holds a 40% interest in the South Arturo deposit in northern Nevada, where Barrick holds the remaining 60%. Barrick mines South Arturo as a satellite to its Goldstrike operations, producing feed for the Goldstrike mill. Premier estimated that its attributable production from South Arturo in 2016 will total about 80,000 oz and that its combined production from South Arturo and Mercedes in 2017 will total about 138,000 oz.
Concurrent with Yamana’s announcement of its sale of the Mercedes mine, the company announced that it will recommission its C1 Santa Luz operations in Bahia, Brazil. C1 Santa Luz was placed on care and maintenance in 2014. Yamana is forecasting a 10-year mine life following recommissioning, with production averaging 114,000 oz/y of gold over the first seven years of operation.
Initial capital expenditures to recommission C1 Santa Luz are estimated at $84.2 million. All-in sustaining costs of production are estimated at $846/oz. Production startup is planned for 2018.