Aussie major to buy Golden Triangle mine
Newcrest makes offer for Red Chris gold-copper mine in BC
Last updated 3/22/2019 at 6:17am
Newcrest Mining Ltd. has cut a deal to buy a majority position in Imperial Metals Corp.'s Red Chris copper-gold mine in northern British Columbia, which will be the Australian gold miner's first operation north of the equator.
In a deal announced by the company on March 10, Australia's largest gold producer has agreed to pay Imperial Metals US$806.5 million in cash to acquire a 70 percent stake in Red Chris, not a bad sum considering the 13 billion pounds of copper and 20 million oz of gold currently in resources.
The Red Chris mine produced 60.35 million lb of copper and 41,935 oz of gold during 2018.
Newcrest, which will take over operations once the deal is finalized, believes it can apply the same techniques and technologies that have proven successful at Cadia, a similar style copper-gold mine in eastern Australia, to Red Chris.
"We believe we can bring our unique technical capabilities to unlock the full value potential of this orebody in one of the premier gold districts in the world," said Newcrest Managing Director Sandeep Biswas. "The geology of Red Chris is similar to our Cadia orebodies in Australia and we will be applying our considerable experience in exploration, open-pit mining, caving and processing to maximize the value of Red Chris and the opportunities in the surrounding region."
For Imperial Metals, the deal brings on a strong mining partner with a proven track record efficiently mining large gold- and copper-rich porphyry orebodies at Red Chris.
"We believe that this joint venture partnership will enable Imperial to unlock significant value at Red Chris by leveraging Newcrest's unique technical expertise in block caving operations," said Imperial Metals President Brian Kynoch.
The sale will also provide the cash need to pay off debts related to building Red Chris and the dam failure at Mount Polley, another gold-copper mine in B.C.
Two-stage optimization plan
Newcrest's Cadia mine produced roughly 136 million lb of copper and 599,717 oz of gold during Newcrest's fiscal year 2018, which ended in June.
The Australian major has a two-stage plan for Red Chris, which involves applying what has worked at Cadia to maximizing the latent potential of the northern B.C. mine.
The first stage includes optimizing the current operation by eliminating bottlenecks and improving recoveries of the processing plant, and optimizing the plan for the current open-pit mine at Red Chris.
The open-pit portion of Red Chris includes 847.9 million metric tons of measured and indicated resources averaging 0.31 percent (5.79 billion lb) copper, 0.27 g/t (7.36 million oz) gold and 1.01 g/t (27.53 million oz) silver. Plus, 397.3 million metric tons of inferred resource averaging 0.24 percent (2.1 billion lb) copper, 0.26 g/t (3.32 million oz) gold and 0.93 g/t (11.88 million oz) silver.
Newcrest said this resource, coupled with the 11-million-metric-ton-per-year processing plant, provides future expansion options.
The real value, however, comes when the Australian company implements new technologies during the second phase of its plan for Red Chris.
This stage centers on applying the block caving underground mining techniques that have proven successful at Cadia.
Basically, block cave mining involves starting at the bottom of the orebody and allowing the deposit to progressively collapse under its own weight. This method, typically used for large lower grade orebodies, such as the porphyry deposits at Red Chris and Cadia, allows for bulk mining similar to an open-pit mine on the surface.
"We look at this opportunity in the same way as we do with Cadia, where we have proven we can create significant value from deep underground porphyry orebodies," said Biswas.
By going to the bottom, Newcrest would get to the highest grade portion of the Red Chris orebody earlier in the mine plan.
With its vision of block caving, Newcrest would mine less of the ore from the open-pit, which would increase the value of the surface mine by reducing the amount of waste material that needs to be removed and lessen the environmental footprint of the operation.
The underground portion of Red Chris hosts 185.8 million metric tons of measured and indicated resource averaging 0.53 percent (2.17 billion lb) copper, 0.7 g/t (4.18 million oz) gold and 1.72 g/t (10.28 million oz) silver. Plus, 389.8 million metric tons of inferred resource averaging 0.33 percent (2.84 billion lb) copper, 0.38 g/t (4.76 million oz) gold and 1.15 g/t (14.41 million oz) silver.
To further study the potential of establishing a block cave mine, as well as provide information to calculate resources compliant to Australia's Joint Ore Reserves Committee (JORC) reporting standards, Newcrest plans to accelerate the requisite drilling and studies at Red Chris.
Newcrest said past shallow drilling indicates that there is also potential for further deep discoveries to be made in the larger land package, which the company plans to investigate.
Needed cash for Imperial
Imperial Metals initiated a restructuring process in 2018, which included the appointment of a special committee to explore options for its British Columbia assets.
The Vancouver-based exploration and mining company's assets include the Red Chris, Mount Polley and Huckleberry mines, and the Ruddock Creek lead-zinc project.
A major collapse of the tailings dam at Mount Polley in 2014 came at the same time that Imperial Metals was finishing up construction at Red Chris, which began production the following year.
As a result of the two coinciding events, Imperial has around C$700 million (US$525 million) of current debt, which includes around US$420 million that was due in March.
So, the money coming from Newcrest will be a timely boost for the Vancouver-based miner.
"With a stronger financial position and highly actionable path to exploiting the underground mining potential of Red Chris, Imperial will be in a much stronger position to create value and opportunities for its shareholders, stakeholders and the Tahltan Nation," said Kynoch.
In the meantime, Imperial was able to extend the loans due on March 15 to September, which is when the Red Chris sale is expected to close.
For Newcrest, Red Chris provides majority ownership of a world-class asset that fits well within its wheelhouse and at a price that it can afford.
With roughly US$3 billion in cash and undrawn bank facilities, along with generating more than US$700 million in free cash flow each year, Newcrest has plenty of funds on-hand to acquire its first North American mine, initiate the upgrades it has planned for Red Chris and still be able to make other acquisitions if the opportunity arises.
"If we see a place where we can add shareholder value, or unlock superior value, we will have a look at it," Biswas said when asked whether Newcrest would be looking to acquire additional mining assets.