Anaconda unloads iron ore assets in Chile

Anaconda Mining (ANX-T) has sold off its iron ore assets in Chile in a bid to pay down debt and focus on gold.

A privately held Chilean company named Hierro Tal Tal S.A. is buying the assets for up to US$11 million in cash, a gross sales royalty and a 1.25% carried interest in Tal Tal itself.

The deal comes a few weeks after Anaconda reported a net loss in its most recent quarter of $811,659. Such losses, when combined with loans and debentures amounting to $1.5 million, left the company in the need of a cash infusion.

Anaconda’s debt stands at $8.4 million, with the key components being a convertible loan for $1.8 million, convertible debentures of $1.6 million and debentures of $2.6 million.

In June, Anaconda completed a private placement that saw it issue 17 million shares and later sell them at 7¢ per share, to raise money and retire $1.05 million in promissory notes.

The deal with Tal Tal gets the company US$2 million on closing – money that Anaconda will use to repay the full principal amount and accrued interest from the $711,000 it owes to its series-three debenture holders.

When Tal Tal pays Anaconda another US$2 million next May, that will also go towards paying down debt, as well as to covering portions of its loan and the series-one and series-two debentures.

Dustin Angelo, Anaconda’s president and chief executive, says that by the middle of next year the company will have reduced its debt to $5.7 million. 

Its nearest debt obligation is due in September 2013, but by that time Angelo hopes to have the company’s Pine Cove mine in Newfoundland pumping out optimal cash flows. 

Beyond paying down a significant amount of debt, Angelo says the sale also allows the company to focus on enhancing the performance at Pine Cove.

In this year’s final quarter the mine produced 2,858 oz. gold at cash costs of $1,012 per oz. and an average selling price of $1,581 per oz. The operation generated a net income of $207,000, but that wasn’t enough to offset more than $1 million in losses at its Chilean operations. Losses largely owed to exploration costs at the San Gabriel project.

With the mine’s mill modifications completed at a $300,000 cost, Anaconda will focus on maximizing production.

“We expect to bring cash costs down and that will be volume driven,” Angelo says. “We’re now getting good tonnage per day and we’ve been maintaining good grades, so unit costs will come down, as our cost structure is primarily made up of fixed costs.”

 The open-pit mine has a 7.5-year mine life, with the mill processing 1,000 tonnes of ore per day at an average head grade of 2 grams gold per tonne. 

The sale to Tal Tal comprised the company’s 50% stake in Minera Hierro San Gabriel and a 20% stake in Inversiones Hierro Antofagasta.

After the second payment of US$2 million is received in May, Anaconda will get another US$3 million once any of the properties reach commercial production.

A maximum of US$4 million can be earned depending on the sales price realized for production from the properties, while the minimum amount received would be $500,000. 

Anaconda also gets a gross sales royalty for all production sold from the properties and a 1.25% carried interest in Tal Tal.

The stakes sold to Tal Tal are part of the company’s iron ore properties near the town of Taltal in northern Chile. Tal Tal is conducting economic studies on the project, with production expected to begin in December 2012.