Giustra behind US$300 million sale of Goldcorp mines to junior

Vancouver In what looks to be a US$300 million pruning exercise, Goldcorp (G-T, GG-N) is spinning out mines in Australia and Brazil into a junior company led by Frank Giustras investment banking firm Endeavour Financial.

Acquiring the Peak Mine in Australia and Amapari mine in Brazil, will instantly make GPJ Ventures (GPJ.H-V), a 200,000 oz. per year gold producer, said GPJ President Gordon Keep, who is also managing director, corporate finance at Endeavour.

It was Endeavours idea to do this deal and present it to both GPJ and Goldcorp, said Keep, adding that the assets give the company assets from which to build. They accepted, he said.

Subject to financing, GPJ Ventures, will pay Goldcorp US$200 million in cash, and a further US$100 million worth of shares (155 million) of GPJ, leaving Goldcorp with a 24% stake in the junior company, which is changing its name to Peak Gold.

On closing, Endeavour will receive a fee of five million shares in GPJ, which traded at 93 when its stock was halted February 19 to allow for the announcement.

In order to fund the transaction, GPJ will complete a financing of 370 million subscription receipts at 75 each. Each subscription receipt will be convertible into units of the company comprised of common shares and half of a transferable share purchase warrant.

Each whole warrant will entitle the holder to buy an additional common share of the company for five years at a price to be determined. Proceeds will be used to fund acquisition costs and to set up an office and employees.

News of the deal comes as a sharp reduction in proven and probable reserves at Amapari to 485,000 oz. from 1.34 million oz at the end of last year — forces Vancouver-based Goldcorp to post a US$170 million charge against its 2006 earnings.

The reduction reflects the exclusion of sulfide mineralization previously included in proven and probable reserves, the company said.

Already Canadas second largest gold miner, Goldcorp said it intends to focus on 11 mines and seven projects in North and South America that it considers to be core assets.

This transaction underscores our commitment to simplifying Goldcorps asset portfolio, said Kevin McArthur, Goldcorp President and chief executive officer.

It sharpens our geographic focus and provides capital that will help fund our growth opportunities and enhance our already-strong financial flexibility.

Goldcorp shares fell 7 to $32.74, February 19, the day the transaction was announced.

One analyst said he is not surprised by the deal. Amapari, which was bought from Rio Tinto (RTP-N, RIO-L), has been a problem from day one, said John Ing, President of Maison Placements Canada in Toronto. Peak had reached its peak a couple of years ago, he said.

Frankly, these are two underperforming assets, Ing said.

Combined production from the two mines is expected to be 215,000 oz. this year, with 120,000 oz. from Peak and 95,000 from Amapari.

Julio Carvalho, previously Goldcorps executive vice-president of South America will serve as chief executive officer of Peak Gold. Jim Simpson, previously general manager of the Peak mine, will act as chief operating officer.

Initially, the Peak Gold board of directors will be comprised of Goldcorp Chairman Ian Telfer, Endeavour Financial Chairman Frank Giustra, Keep, and Carvalho.

Completion of the transaction is subject to a number of conditions, including the execution of definitive agreements, requisite regulatory approvals, completion by CPJ of a $277.5 million (Canadian) equity financing, and shareholder approval.

The Amapari mine was commissioned in the second half of 2005. It consists of an open-pit and heap leach operation and an undeveloped sulphide milling operation sourcing ore from open pits and an undeveloped underground operation.

Following commissioning of the hydrometallurgical plant in the third quarter, a total of 24,715 oz of gold was poured in 2005. At the end of the year, a total of 918,000 tonnes of ore had been stacked on the leach pads and placed under irrigation

The mine is located in the Vila Nova Greenstone Belt, part of the Guiana Shield that covers the northern part of Brazil, parts of the Guianas, and extends northwest into eastern Venezuela.

Peak Gold mine is a medium size gold mining operation located in the Cobar Gold Field of central west New South Wales, Australia. It is comprised of a series of deposits that are feeding a 672,000 tonne-per-year central milling operation.

Most of the production is derived from ore mined from underground and is supplemented by stockpiled material. In addition to gold, the mine is expected to produce eight million pounds of copper this year.