The former Red Back Mining team led by Richard Clark is back to advance Atacama Minerals (aam-v) using the same strategy they used to build the West African gold producer before selling it to Kinross Gold (k-t, kgc-n) for US$7.1 billion last September.
That team transformed Red Back, which had an initial $50-million market cap into an approximate $8-billion entity, says Clark in an interview from Chile. He added that the executives have been looking around to repeat their success with a new vehicle.
As the Red Back team shopped for the right vehicle that would allow them to acquire new properties, they flipped through Lundin Group’s catalogue of companies and found Atacama Minerals fit the bill. “And soon as we looked at it, we went it’s perfect,” recalls Clark, who was Atacama’s former president and CEO at the time the company was constructing the Aguas Blancas iodine-sulphate-nitrate mine in northern Chile.
Atacama’s prized asset started producing iodine in April 2001 and is now undergoing a phased development plan to enhance iodine and nitrate production.
Once Aguas Blancas is in full production, Clark expects it to generate a free cash flow of around $40 million to $50 million a year. “And if you apply your normal multiple of 4 or 5 times free cash. This asset should be worth somewhere in the order of $175 to $200 million,” he estimates, noting it gives a solid asset base valuation to build a company on.
Joining Clark on Atacama’s senior management is Simon Jackson as president, Alessandro Bitelli as CFO, Kevin Ross as chief operating officer and Hugh Stuart as vice-president of exploration.
Tim Miller, resigned as Atacama’s president and CEO, and Wanda Lee will retire from her CFO position on Nov. 30.
Atacama’s new executives intend to use Aguas Blancas as its bread and butter, while examining other gold prospects.
“We are not intending to be long-term iodine producers or industrial mineral producers,” concedes Clark. “What we are looking to do is maximize the value of this asset over the next 12 to 18 months and use it as collateral to leverage into the gold business.”
Clark says he will use the same strategy he implemented at Red Back to add high-potential properties to the company’s portfolio.
Atacama Minerals will review companies that have gold projects at a prefeasibility or feasibility level, and assess whether the management of those companies need financial or technical skills to develop the mine they might have, says Clark. He envisions Atacama negotiating agreements with companies that might have a mine ready to go but not the capacity to get it online. He sees his team stepping in with its technical and financial abilities to help get that mine constructed.
“That’s how we built Red Back. It’s exactly the same business plan as Red Back. We went in and acquired properties or projects that were at prefeasibility or feasibility level and we built them,” explains Clark. “That’s how we built Chirano in Ghana and Tasiast in Mauritania.”
After constructing the mines, the company used the cash flow from the projects to conduct additional exploration. Soon Red Back’s largest shareholder, Kinross, who was eyeing the expansion potential at the Tasiast gold deposit, took over.
“We are very fortunate that Rick and his team have joined Atacama,” said Lukas Lundin, Atacama’s chairman, in the press release. “Their significant experience and proven track record will ensure that the Aguas Blancas mine attains the world-class status it deserves.”
The mine has NI 43-101 compliant reserves of 52.2 million tonnes grading 456 parts per million of iodine, 13.2% sulphate and 2.02% nitrate.
Before this year is out, Clark plans to replace Atacama’s operating management team and have Aguas Blancas produce about 1,100 to 1,200 tonnes of iodine for the year. He also aims to get the mechanical leaching plant fully operational to maximize the heap leaching.
Along with the fresh faces on management, Atacama plans to buy Sirocco Gold, a private company created by Red Back’s former executives to explore gold prospects and acquisitions targets in West Africa.
Originally, six months ago the plan was to complete a private equity in Sirocco, says Clark. But with the downward trend in the debt, equity, and commodity markets, he decided it would make more sense for Atacama to buy out Sirocco for 20 million Atacama shares.
Sirocco has a joint-venture with Kinross in Cote d’Ivoire, which includes three projects and three applications pending. The other exploration program is in Mauritania, where Sirocco has a joint venture with the government’s mining company SNIM and is earning into three of SNIM’s projects.
The Sirocco takeover is conditional on Atacama completing a $5-million non-brokered private placement consisting of 10 million shares at 50¢. The proceeds will go towards advancing Sirocco’s projects and to further explore opportunities in West Africa and South America.
Since Atacama’s new management and Zebra Holdings and Investments – a company controlled by a Lundin family trust – both hold Sirocco shares, the acquisition will be considered a “related party transaction.”
The junior also has the Salvador potash project on the northeastern coast of Brazil. Situated 45 km from the port city of Salvador Bahia, the project’s exploration permits cover 2,500 sq. km of the southern on-shore part of the Reconcavo sedimentary basin. Clark says the company is looking for a joint-venture partner for Salvador.
The new management holds about 15% of Atacama’s 166.4 million shares outstanding.
On news of the Red Back team taking Atacama’s reins, shareholders pushed the company’s shares up 58% to close Oct. 24 at 87¢.
At presstime, its shares were trading at 90¢, within a 52-week range of 40¢-$1.02.
well another insider BS deal which is typical of the Canadian mining community. Sirocco gets bot at a related party transaction, Clark gets a markup and what the heck do Atacama shareholders get, Clark? great move in the share price lets see if lasts.