AuRico will sell properties including the Ocampo mine and Venus and Los Jarros projects in northern Chihuahua state and a 50 percent stake in the Orion project in Nayarit state, the companies said yesterday in separate statements.
Slim, the world’s richest person according to the Bloomberg Billionaires Index, is betting precious metals will show resilience as the global economy struggles to grow. The price of gold, which is poised to rise for the 12th straight year, hasn’t dropped below $1,500 an ounce in more than a year.
Frisco (MFRISCOA), which was spun off from Slim’s holding company Grupo Carso SAB at the beginning of 2011, is his biggest holding behind wireless carrier America Movil SAB and financial-services company Grupo Financiero Inbursa SAB. He holds an almost 80 percent stake in Mexico City-based Frisco.
The Ocampo mine would add 20 percent to Frisco’s 2012 earnings before interest, tax, depreciation and amortization, and 11 percent in 2013, based on AuRico’s production and cost forecasts, Rodrigo Garcilazo, an analyst at Corporativo GBM SAB in Mexico City, said today in a note.
While the acquisition looks positive for Frisco, financing it completely with borrowings would boost the company’s net- debt-to-earnings ratio to about 3 times, from 1.6 times, “making us cautious on a further equity increase,” Garcilazo said.
AuRico, based in Halifax, Nova Scotia, plans to use proceeds from the sale to pay down debt, make other investments and return capital to shareholders. The company will continue to operate its El Chanate mine in Mexico’s Sonora state and the Young-Davidson operation in Ontario.
AuRico soared 21 percent to C$7.60 at the close in Toronto, the biggest gain since Nov. 4, 2008. Frisco increased 0.5 percent to 54.85 pesos in Mexico City.
The transaction price implies a price to net asset value multiple of 0.75 times, which is “attractive” for AuRico, given the company’s average trading multiple of about 0.63 times before the transaction, Rahul Paul, a Toronto-based analyst at Canaccord Financial Inc., said in a note today. Paul upgraded AuRico (AUQ) to buy from hold following the announcement.
“Ocampo was widely considered by investors to be an operationally challenging and capital intensive asset generating limited free cash flow, and had been the source of the company’s recent operational shortfalls,” Paul said.
AuRico lowered its 2012 production forecast on July 16, citing reduced productivity as a result of high labor turnover at the Ocampo gold and silver mine. The company announced at the same time that Chief Executive Officer Rene Marion would resign for health reasons. Marion was replaced by Scott Perry, who had been chief financial officer.
AuRico acquired the Young-Davidson mine when it bought Northgate Minerals Corp. for C$1.34 billion ($1.37 billion) in October 2011. The company sold its El Cubo mine and an exploration project in Mexico to Endeavour Silver Corp. (EDR) in July this year.
The AuRico deal is Frisco’s second acquisition in two years. The company increased its stake in Minera Tayahua SA, which operates a silver and gold mine, to 90 percent in exchange for allowing minority shareholders to acquire 5.64 billion pesos ($440 million) in Frisco stock.
The Los Jarros project surrounds Frisco’s El Concheno mine, and Ocampo and Venus are nearby, Slim’s company said. That should lead to lower operating costs for the combined projects, Frisco said.
AuRico is planning a “meaningful, one-time return of capital” to shareholders, probably in the first quarter of 2013, CEO Perry said today on a conference call.
“We are probably talking about a ballpark figure of $300 million that is going to represent the one-time return of capital,” Perry said.
The proposed sale would be the largest gold deal involving a Mexican company, according to data compiled by Bloomberg. Globally, there have been 19 gold-mining deals bigger than $100 million announced this year, valued at $6.49 billion, according to data compiled by Bloomberg. That compares with 18 transactions worth $14.4 billion announced in the same period of 2011.
Frisco said it hired Bank of America Corp.’s Merrill Lynch unit as an adviser that will help it finance the transaction and refinance other debt.
Credit Suisse Group AG advised AuRico and it also received legal counsel from Fasken Martineau DuMoulin LLP, the Canadian company said. The transaction is expected to close in December, the companies said.
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