Wheaton River gains Mexican foothold

After spending the better part of a year raising cash and disposing of certain development properties, the revamped management team of Wheaton River Minerals (WRM-T) has struck a deal to buy the mining division of Sanluis, a Mexican-based autoparts manufacturer, for US$75 million.

Sanluis is divesting itself of the division in order to concentrate solely on its autoparts business. Known as Minas Luismin, the division accounts for only 12% of its parent company’s income. Last year, its three mining operations produced 98,000 oz. gold and 5.8 million oz. silver, equivalent to 190,600 oz. gold-equivalent, at a production cost of US$200 per oz. gold-equivalent. In 2000, Luismin produced 89,700 oz. gold and 5.5 million oz. silver, or 187,000 oz. gold-equivalent at a cost of US$206 per oz. gold-equivalent. Production for 2002 is expected to exceed 183,000 oz. gold-equivalent at US$195 per oz.

Luismin ranks as Mexico’s third-largest producer of silver and its second-biggest gold producer.

“We view the acquisition of Luismin as the first in a series of acquisitions as our group tries to create a new, mid-sized gold mining company focused on increasing production, reserves and cash flow,” states Wheaton River President Ian Telfer. Telfer previously served as president and chief executive officer of Vengold, and, prior to that, presided over TVX Gold.

The new management team also includes Frank Giustra, who joined the board of directors last year. Giustra was chairman and chief executive officer of Yorkton Securities from 1990 to 1996 before departing to start up Lions Gate Entertainment.

Rounding out the team, as an advisor, is Pierre Lassonde, president of Newmont Mining.

The US$75-million cash purchase price will include about US$20 million in bank debt to replace an existing Luismin banking facility, plus US$7.5 million in Wheaton shares to be issued at a 25% premium to the market price. These shares will have a 24-month trading restriction. In addition, should the price of silver perform and average US$5 per oz. or more for 60 consecutive trading days during the two years following completion of the transaction, Wheaton will be required to pay another US$7.5 million in shares.

Currently, the company has US$20 million in cash and marketable securities. It has enlisted Griffiths McBurney & Partners to lead an investment banking syndicate, including BMO Nesbitt Burns, Canaccord Capital and Haywood Securities, to assist in a special warrant private placement financing. A special warrant unit is expected to consist of a share and a half-warrant.

Telfer expects the Luismin deal to close in mid-June, leaving Wheaton with roughly 150 million shares outstanding.

Luismin’s sales totalled US$62 million in 2001 and earnings before interest, tax, depreciation and amortization (EBITDA) of US$21.8 million, including a non-recurring gain of US$9.5 million. In the previous year, sales amounted to US$54 million, and the EBIDTA figure was US$14 million.

Luisman’s proven and probable mineral reserves contain 224,000 oz. gold and 13.7 million oz. silver, or 860,000 oz. gold-equivalent, sufficient for a mine life of 4.5 years. Total resources stand at 3.8 million oz. gold-equivalent, comprising 1.5 million oz. gold and 152 million oz. silver.

Over the past 10 years, Luismin has converted more than 80% of the resources to reserves, and Telfer is confident this will continue. “The mine life ahead of all of these properties, if no other resources are found, is somewhere between 17 and 20 years,” he says.

Luismin comprises three mining operations: San Dimas, San Martin and La Guitarra. San Dimas itself consists of three mine areas centred between Durango and Mazatlan in the Sierra Madre Mountain Range. The district is responsible for about two-thirds of Luismin’s production and three-quarters of its reserves. Last year, San Dimas accounted for 69% of Luismin’s total production, or 132,000 oz. gold-equivalent at a cash cost of US$179 per oz.

The San Martin mine, near the town of Colon in Queretaro state, produced 38,000 oz. gold-equivalent, or less than 20% of the division’s total production. Cash costs were US$188 per oz.

La Guitarra, near the town of Temascaltepec, accounts for 10% of Luismin’s total. Last year, it produced about 20,000 oz. gold-equivalent at US$226 per oz.

Wheaton also acquires 44 exploration projects in Mexico, ranging from grassroots to advanced-stage. “A number of the exploration projects are well-advanced, and there is a great deal of upside potential,” says Telfer. One of them, containing half a million ounces gold-equivalent, will be ready for mining in 2003.

In the meantime, Wheaton has discontinued work on the Bellavista open-pit, heap-leach gold project in Costa Rica pending higher gold prices. “It’s under review and no decision has been made,” says Telfer.