Metallica tops up treasury (March 17, 2003)

Metallica Resources (MR-T) has closed a $15-million private placement to help fund its purchase of the half-stake in the Cerro San Pedro gold deposit that it does not already own.

The company agreed to pay Glamis Gold (GLG-T) US$18 million for its half of the project. An initial payment of US$2 million was paid at the deal’s closing, in February, and another payment of US$5 million is due in mid-August.

Metallica issued 10.1 million units priced at $1.50 apiece. A unit consists of a share and half a warrant, with a full warrant entitling the holder to purchase a share at $2.

Canaccord Capital, Griffiths McBurney & Partners and Yorkton Securities acted as agents for the placement. All shared a portion of the gross proceeds.

In addition to covering the upcoming payment, net proceeds from the placement will be used for project development.

Situated in Mexico’s San Luis Potosi state, Cerro San Pedro hosts proven and probable reserves of 61.1 million tonnes grading 0.59 gram gold and 24 grams silver per tonne.

In 2000, a feasibility study concluded the project could support a run-of-mine, heap-leach operation over a mine life of eight years, with annual production pegged at 110,000 oz. gold-equivalent.

The estimate was based on reserves of 49.2 million tonnes grading 0.57 gram gold and 23 grams silver, a gold price of US$275 per oz., and a silver price of US$5 per oz.

Cash costs were projected at US$129 per oz. and capital costs, at US$45 million. The stripping ratio was pegged at 1.5-to-1.

Metallica’s revised reserve estimate is based on a gold price of US$300 per oz. and a silver price of US$4.62 per oz. It also reduced the projected stripping ratio to 1.21-to-1.

As part of the deal, Glamis retains a sliding-scale net smelter return royalty on all mineral production from the property. The royalty ranges from 0.5% to 2%, based on the price of gold.

Metallica also owns the El Morro copper-gold porphyry deposit in Chile. The deposit hosts an inferred resource of 465 million tonnes grading 0.61% copper and 0.5 gram gold, based on a cutoff grade of 0.4% copper.

Noranda (NRD-T) can earn a 70% interest in El Morro by spending US$10 million on development and paying US$10 million in cash by September 2005.

The deal also requires the major to table a bankable feasibility study within two years of covering the expenditure and payment commitments.

Metallica has US$11 million in cash and is debt-free. It has 42.5 million shares outstanding, which includes those shares issued in the recent financing.