Wheaton gains Mexican foothold

Having made some room in its portfolio, Wheaton River Minerals (WRM-T) has agreed to acquire Luismin, the gold and silver mining subsidiary of Mexican conglomerate Corporacion Sanluis for US$75 million in cash and up to US$15 million worth of shares.

About US$20 million of the cash portion would be bank financed to replace an existing Luismin banking facility.

As for the share component, US$7.5 million worth of common shares will be issued at a 25% premium to the market price. Another US$7.5-million parcel will follow as a silver price adjustment payment should the price of silver average at least US$5 per oz. over a 60-day period during the 2 years following closing of the deal.

Under the proposed deal, Sanluis’ CEO Antonio Madero and Eduardo Luna, who will remain as Luismin’s president, will join Wheaton’s board.

The deal is subject to regulatory approvals and financing. Wheaton currently has US$20 million in cash and marketable securities. The company plans a special warrant equity financing led by Griffiths McBurney to help fund the acquisition. The company expects to seal the deal in mid-June.

Wheaton’s CEO Ian Telfer said in a prepared statement, “Over the past six months we have raised cash and disposed of certain development properties in preparation for an acquisition. Over the next five years we expect to increase annual production to over 250,000 gold equivalent ounces per year and make improvements that will result in cash costs declining to less than US$170 per ounce. We are also very excited about a number of the exploration properties that are well advanced.”

Earlier this year, Wheaton, via 89%-owned North American Metals, inked a deal to sell the Red Mountain project in northwestern British Columbia, to Seabridge Resources (SEA-V) for 800,000 shares. Wheaton retains a series of net smelter return royalty agreements ranging from 2% to 6.5%.

Late last year, the junior producer completed the sale of its George Lake project in Nunavut to Kinross Gold (K-T). Wheaton received 4 million Kinross shares, of which it sold 1 million at a $1.75 each in early February.

Telfer added, “The acquisition of Luismin is the first of a series of acquisitions designed to create a new mid-sized gold mining company focussed on increasing production, reserves and cash flow.”

Luismin’s proven and probable mineral reserves stand at 860,000 gold equivalent ounces. Resources are pegged at 3.8 million gold equivalent oz., with about 41% being gold.

The company also has a stable of more than 40 exploration projects in Mexico.

During 2001, Luismin posted earnings before interest, taxes, depreciation and amortization (EBITDA ) of US $ 21.8 million on sales of US$62.0 million. Included is a non-recurring gain of US$9.5 million during the second half of 2001.

During the fourth quarter, EBITDA amounted to US $5.2 million, with sales hitting US$15.9 million. The results were lower than expected thanks to an average realized gold, which fell US$6.70 to US$287.60 from a year earlier. Similarly the company realized a lower silver price of US$ 4.46, 18.9% of last year’s pace.

Fourth-quarter production totalled 25,800 oz. of gold and 1.5 million oz. of silver, and brought year-end totals to 98,000 oz. and 5.8 million oz., respectively. Production costs averaged US$200 per gold equivalent oz. during the last three months of 2001.

The company ranks as Mexico’s third largest producer of silver and second largest producer of gold.

Sanluis said the sale was part of its strategy to focus on its core auto parts business.

After opening more than 11% higher on the Toronto Stock Exchange on Thursday, Wheaton shares settled back down to $1.16 in late-afternoon traded. The stock trades in a 52-week range of 47-$1.27.