Yamana sells off three mines to Aura Minerals

Potentially hindering itself while helping another company, Yamana Gold (YRI-T) has agreed to sell three producing gold mines to copper development company Aura Minerals (ORA-T) for US$200 million.

Aura will buy the San Adres gold mine in Honduras and the Sao Francisco and Sao Vicente gold mines in Brazil. Together the mines produce 220,000 oz. gold per year at an average cash cost of US$550 per oz. and will give Aura much needed cash flow for its Arapiraca gold-copper-iron ore project.

“We were looking at how the heck to go to the debt market and raise money for this project,” Aura president and CEO Patrick Downey said during a conference call today. “It was a big overhang in this company and we have removed that.”

Yamana views the mines as non-core assets and says selling them will help it streamline its portfolio.

BMO Capital Markets analyst David Haughton agrees that the sale will rationalize Yamana’s asset base but says it’s dilutive to Yamana’s net asset value per share and its earnings per share. He also says letting go of the mines could prevent the company from meeting its production goals.

“It puts them a little farther away from their goal of 2.2 million oz. by 2012,” Haughton says.

In a statement, Yamana chairman and CEO Peter Marrone said that the sale will lower the company’s cash costs, improve margins, and increase reserves, production and cash flow per mine.

“We believe we will derive significantly more value from our share position than had these mines remained directly held by our company, particularly in a higher gold price environment,” Marrone said.

Yamana did not mention how it would meet its production goals but Haughton says that buying new projects is part of the rationalization process.

“Divesture of core assets is one part of rationalization; the acquisition of new projects is the other part of it,” Haugton says. “We might see that as the other part of it.”

Under the deal, Aura will pay US$90 million in cash, US$70 million in deferred cash payments and US$40 million in Aura shares at 40¢ apiece. In order for the deal to go through Aura must raise C$70 million in a financing.

The transaction will close in two parts; the sale of San Andres is expected to close on July 23 at which time Aura will pay Yamana US$74 million. Aura will have to wait about six months before the two Brazilian mines, Sao Francisco and Sao Vicente can be officially turned over due to jurisdiction-related regulatory requirements.

Aura shares jumped 18% today, or 8¢, to 52¢ apice on a trading volume of 8.5 million shares.

Yamana shares were down 3.6%, or 42¢, to $11.24 apiece on a trading volume of 10.1 million shares.