Thompson Creek in $650 mn Terrane deal for Mt Millgan copper-gold project
With the proposed acquisition of Vancouver's Terrane Metals, U.S.-based molybdenum miner Thompson Creek seeks to become a mid-tier base metals producer.
Posted: Friday , 16 Jul 2010
RENO, NV -
Not so very long ago former Thompson Creek Metals CEO Steve Mooney had come out of self-imposed retirement, and was digging into his own pockets to make payroll at his newly acquired molybdenum operations.
On Thursday, current CEO Kevin Loughery announced the now successful and cash-flush Thompson Creek Metals molybdenum company will be diversifying into copper mining in its goal become a North American-based, mid-tier base metals producer.
Thompson Creek (NYSE: TC, TSX: TCM) and Terrane Metals (TSX-V: TRX) announced the friendly acquisition of Terrane for a total of C$650 million (US$623.7mn) made up of C90-cents in cash per Terrane share and 0.052 TC shares per Terrane share.
Terrane's main asset is the construction ready Mt. Milligan copper-gold project in British Columbia.
Denver-based Thompson Creek also announced it has entered a separate transaction with Denver's Royal Gold, in which Royal will pay US$311.5 million to Thompson Creek for the right to purchase 25% of the gold stream from Terrane's Mt. Milligan project in British Columbia.
Major Terrane shareholder Goldcorp says it is happy with the deal.
Over the years investors had hoped that Goldcorp would serve as a fairy godmother of sorts and develop the Mt. Milligan copper-gold project. However, Goldcorp was not in the hunt for a gold project that in reality was more of a copper project.
While much has been made of Thompson Creek's reported foray into the gold business through the Terrane acquisition, Thompson Creek was actually in the mood to acquire Mt. Milligan's copper assets.
The acquisition also allows Thompson Creek to acquire assets in close proximity to its existing operations in British Columbia. Terrane's Mt. Milligan and Berg projects are both within 150km of Thompson Creek's Endako moly mine. Their close proximity gives Thompson Creek an advantage for operational, development and tax synergies.
Endako currently produces 7 million to 8 million pounds of moly annually, has an expansion underway, and an estimated mine life of 26 years. Mt. Milligan is planned for an annual production of 81 million pounds of copper and 194,000 ounces of gold with an estimated mine life of 22 years.
Proven and probable reserves for Mt. Milligan include 2.1 billion of contained copper and 6 million ounces of contained gold. The estimated start up of Mt. Milligan is 2013.
In a conference call with analysts Thursday, Loughery stressed Thompson Creek would view itself as a moly-copper company, not as a moly-copper-gold company. The proposed acquisition of Terrane would give Thompson Creek a by-product gold stream that will help transform what had previously been considered a potentially risky copper-gold project into a successful, low-cost copper mine.
Thompson Creek officials told analysts that their company would provide moly, the essential metal for today's steel industry, which is now in recovery over the short-term. The acquisition of Mt. Milligan would provide the copper that is consistent with Thompson Creek's base metal focus, and add significant gold by-product credits.
Currently Thompson Creek's four biggest projects all focus on molybdenum.
The construction costs for Mt. Milligan will be paid from US$331.5 million of proceeds from the Royal Gold gold-stream transaction, internal cash generation, and up to $250 million from equipment financing and a bank credit facility. Thompson Creek now has a cash balance of US$524 million while Terrane has $76 million in cash.
In a news release Thursday, Chuck Jeannes, Goldcorp CEO, declared, "The Terrane team has done a great job advancing the project. Thompson Creek provides the financial strength and management to build and operate the mine, bringing benefits to British Columbia and shareholders of both companies."
Goldcorp controls 52% of the outstanding shares of Terrane. The Vancouver-based major gold miner has agreed to vote its securities in support of the Thompson Creek acquisition.
"We look forward to being a significant shareholder of Thompson Creek," Jeannes said. "Goldcorp will deploy the cash proceeds toward the continued development of its industry-leading suit of core gold projects."
Coincidentally, Goldcorp CEO Jeannes, Royal Gold CEO Tony Jensen, and Terrane CEO Rob Pease are all former Placer Dome North American executives, who all worked for the company during its most successful and expansionist era. Two of Terrane's and one of Goldcorp's senior executives are also former Placer Dome managers.