Gleichen To Buy Teck’s Morelos

VANCOUVER — Teck (TCK. B-T, TCK-N) has agreed in principle to sell its 78.8% stake in the Morelos gold property to junior explorer Gleichen Resources (GRL-V, GRLFF-O) for US$150 million and a 4.9% interest in the junior.

The day after the two announced the agreement for the Mexican asset in early August, Gleichen, which has about 28.8 million shares outstanding, saw its share price soar 35¢ to 90¢.

Both Teck and Gleichen say they expect the transaction to conclude in the fourth quarter of 2009 and that it is contingent on Gleichen raising the necessary funds. In a release, Gleichen said it plans on raising US$175 million in a private placement on a best-efforts basis.

As of April 30, Gleichen had $4.1 million in cash.

One of Gleichen’s chief selling points is a connection with FNX Mining (FNX-T, FNXMF-O) CEO Terry MacGibbon. Gleichen says MacGibbon advised it through the bidding process with Teck and that he plans on joining the board when the transaction closes.

Gleichen also says it has recruited several talented managers with relevant mining experience.

Gleichen does not own any other exploration properties.

On its bare-bones website, Gleichen describes its mission as aiming “to create shareholder value through the acquisition, exploration, and development of profitable mineral properties, in a manner that is consistent with best practice in environmental stewardship, safety and stakeholder engagement.”

Gleichen’s president and CEO, Michael Murphy, a former institutional equity salesman in Europe, promotes the acquisition as creating the conditions for a different version of the same events that underpinned the success of MacGibbon’s FNX Mining.

He says management at Gleichen contacted MacGibbon in February 2009 to ask his thoughts on the company’s plans to make a go at Morelos. Murphy recalls that MacGibbon said: “‘I think it’s such a good idea I want to be part of it.'”

While Murphy says Gleichen has not yet started to arrange the US$175-million financing, it has put together a talented team. On board are a couple of former Teck employees, he says, and an experienced mine engineer.

Jamila Abassi, who has handled so far rocky community relations in the Morelos project area, will continue to do so for Gleichen; geologist David Jones, who has managed Morelos for Teck, has been hired as a consultant; and Marc Blythe, a mine engineer who is experienced in advancing feasibility level projects to production, is joining Gleichen’s roster.

Murphy says he would like to have a feasibility study complete within 18 months of the deal closing.

For Teck, the sale means it could pay down more of the nearly US$10 billion in debt it took on as part of its acquisition of Fording Canadian Coal Trust in 2008.

To address looming debt payments, the company has successfully restructured its loans and sold off some of its non-core assets, especially in the precious metals category.

This spring, for example, it sold its 40% stake in the Pogo gold mine in Alaska for US$245 million to Sumitomo Metal Mining.

Teck has been advancing the Morelos project through feasibility level drilling, building on a prefeasibility study completed in 2007.

So far, it has calculated measured and indicated resources of 26.2 million tonnes grading 3.55 grams gold per tonne.

The prefeasibility study considered both open-pit and hybrid open-pit and underground operations that would in either case cost about US$300 million to build with production ranging between 249,000 and 264,000 oz. gold per year.

While the prefeasibility was highly positive, one sticking point at Morelos, in Guerrero state, has been community relations.

In 2008, Teck reported that work on the Morelos project was partially blocked by disgruntled locals.