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Yamana Sells Chapada Mine to Lundin Gold and Raises Dividends

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Yamana Gold sells Chapada mine

Today, Yamana Gold (AUY) announced that it has agreed to sell its fully owned Chapada mine to Lundin Gold (LUNMF) for $1 billion. Chapada is primarily a copper mine located in State of Goiás, Brazil (EWZ). Yamana will receive the consideration for the mine as follows:

  • $800 million at closing
  • a consideration of up to $125 million based on the price of gold (GLD)
  • $100 million payment contingent on the development of a pyrite circuit

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The total consideration for the mine exceeds its carrying value. Therefore, the company is expected to report a significant after-tax gain. The transaction is expected to close in Q3 2019, pursuant to regulatory and third-party approvals.

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Rationale for the transaction

Yamana also underlined the strategic rationale behind the transaction, which included:

  • Immediate leverage reduction: The consideration from the sale is expected to help reduce Yamana’s leverage (net debt/EBITDA) to 1.5x from its 2018 year-end value of 2.5x.
  • Improved financial flexibility: The transaction is expected to save the company ~$35 million in interest expenses annually.
  • Rebalanced portfolio: The resultant production profile of the company will consist of five high-quality mines in the Americas (SPY).
  • Increased shareholder returns: Due to the improved balance sheet and lower interest expenses, Yamana has announced it will increase its dividends significantly.

Production profile after Chapada mine sale

After the sale of Chapada mine, Yamana’s production profile will consist of five high-quality mines in the Americas, two in Chile, and one each in Canada, Brazil, and Argentina. The ratio of gold to silver production will be 85% to 15%.

After the closing of the sale transaction in Q3 2019, Yamana’s attributable production for 2019 will be ~1 million gold equivalent ounces (or GEOs). Previously, the company guided for production of 1.06 million GEOs. AUY had guided for AISC (all-in sustaining costs) of $850 to $890 per ounce for 2019, which remains intact after the transaction. Its sustaining capital expenditures are expected decline by $15 million to $20 million per year, while expansionary capex is expected to decline by $2 million to $11 million.

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