How Might Selling the Mercedes Mine Help Yamana Gold Deleverage?



Selling the Mercedes mine

On July 28, 2016, Yamana Gold (AUY) also announced the sale of its 100% stake in Mercedes mine to Premier Gold. The total proceeds from the transaction will be $140 million, with $122.5 million in cash, 6 million common shares of the company, and an additional 3 million common share purchase warrants. The sale is expected to close by September 30, 2016.

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Interest in exploration

In addition, the company will also receive a 1% net smelter return, or NSR. It will become payable on the earlier of the following two options:

  • six years from the closing of the transaction
  • date upon which cumulative production of 450,000 ounces of gold equivalent from the mine is achieved

The NSR will allow Yamana to participate in the future exploration success and mine-life extension at Mercedes. This mine is a non-core asset for Yamana and is its only mine in Mexico.

Use of proceeds

The company stated that it will use the proceeds from this transaction to reduce its net debt. It also said that “this is the first of a series of steps this year to decrease our overall debt.”

The company has also given a go-ahead for the C1 Santa Luz project, which should help the company replace the gold production from Mercedes starting in 2018, according to Yamana’s estimates. This transaction should also be a positive for the company because it will help in debt reduction, which is one of its priorities.

Yamana’s peers (RING) have also been involved in similar portfolio restructuring transactions. AngloGold Ashanti (AU) sold its Cripple Creek & Victor mine to Newmont Mining (NEM), and Barrick Gold (ABX) sold its Nevada assets to Kinross Gold (KGC).

In the next part, we’ll discuss Yamana Gold’s financial leverage.


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