Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Heliostar Metals (TSXV: HSTR) is again buying assets from the former Argonaut Gold to expand in Mexico.
Vancouver-based Heliostar is negotiating with lenders for a loan to pay for the C$5 million purchase, it said on Wednesday. The acquisition includes the San Agustin and La Colorada mines; and the San Antonio and Cerro del Gallo projects, it said.
The deal also cancels $20 million in payments linked to Heliostar’s $30 million acquisition of the Ana Paula project from Argonaut last year, and $150 million in contingency payments on San Antonio from a previous option agreement, Heliostar said.
“The company transitions from single asset developer to a multi-asset producer,” CEO Charles Funk said in a release. “The addition of the two producing gold mines provides cash flow to bring new production online.”
Shares in Heliostar Metals gained 8% to C$0.335 apiece in Toronto by early afternoon Wednesday, valuing the company at C$67.6 million. They’ve traded in a 52-week range of C$0.175 to C$0.36.
Heliostar aims to reach production of more than 500,000 oz. of gold a year by 2030, the company said in May, from around 200,000 oz. now. It secured C$20 million in debt financing for Ana Paula’s development in May.
Argonaut sold its main asset, the Magino gold mine in northern Ontario, to neighbour Alamos Gold (TSX: AGI; NYSE: AGI) for $325 million in a deal expected to close this month. Argonaut then spun out its Mexican assets to Florida Canyon Gold, which led to Heliostar’s Ana Paula deal and newly announced transaction.
The company said it would continue to focus on Ana Paula, which is in the Sierra Madre del Sur mountain range halfway between Mexico City and Acapulco in Guerrero state. The project dates from a 2005 discovery by Goldcorp.
Ana Paula contains 710,920 measured and indicated oz. of gold in 3.4 million tonnes grading 6.6 grams gold per tonne, according to an updated resource issued in November. It also has 4.2 million indicated tonnes grading 4.24 grams gold for another 447,512 ounces.
The new deal expands Heliostar’s measured and indicated resources to 3.5 million oz. of gold plus the Cerro del Gallo historical resource, the company said. It pegged the acquisition cost of measured and indicated resources at less than $1.80 per oz. of gold.
“Perhaps of most value is the addition of a strong management team in Mexico that expands our capability to deliver on Heliostar’s growth goals,” Funk said. He called the deal transformative.
The La Colorada mine, located in Sonora, produces gold from residual leaching while on care and maintenance, the company said. It produced about 140,000 oz. a year from 2012 to last year, it said. First quarter output this year was 3,922 oz. gold and 6,848 oz. silver.
The San Agustin mine, formerly the El Castillo Complex in Durango state, holds the San Agustin open-pit heap leach gold mine, and the closed El Castillo open-pit heap leach gold mine. The San Agustin mine produced 7,568 oz. gold and 39,319 oz. silver in this year’s first quarter. Its output from 2017 to last year was about 53,700 oz. annually.
Cerro del Gallo in Guanajuato state and San Antonio in Baja California Sur state are advanced gold development projects, Heliostar said. The deal, which is due to close in October, also cancels the issuance of a 2% net smelter return royalty on the San Antonio project, which the company said might have become payable according to its option agreement.
