Capstone Mining (CS-T) to buy Pinto Valley for $650-million (U.S.)
April 29, 2013 - News Release
Capstone Mining Corp. has entered into a definitive agreement with BHP Copper Inc., a subsidiary of BHP Billiton Ltd., to purchase BHP Billiton's wholly owned Pinto Valley copper mining operation and the associated San Manuel Arizona Railroad Company in Arizona for $650-million (U.S.).
The Pinto Valley Mine is located in the Globe-Miami mining district in Arizona, approximately 125 kilometres east of Phoenix. It is projected to produce 130 - 150 million pounds of copper in concentrate and approximately 10 million pounds of copper cathode annually, along with by-product molybdenum and silver, at an estimated cash cost of approximately $1.80 per pound, net of by-product credits, for the first five years of production."Pinto Valley represents a unique opportunity to acquire a mid-sized producing copper mine in a well-established and low-risk mining jurisdiction with a significant mineral resource," said Darren Pylot, President and CEO of Capstone. "This acquisition gives Capstone our third producing mine with a long mine life and is consistent with Capstone's strategy of building an intermediate copper producer focused in the Americas.""The purchase price and financing structure allows us to maintain our financial flexibility, retaining approximately $135 million in cash," continued Mr. Pylot. "The retained cash, combined with the immediate cash flow and low on-going capital requirements expected from Pinto Valley and our current operations, provides us with the necessary financial resources to continue to fund our development projects.""During our extensive due diligence process we were very impressed with the world-class operations and the solid workforce and management team that are in place at Pinto Valley. We are looking forward to the Pinto Valley employees joining Capstone as we jointly prepare to realize the full value of the Pinto Valley asset well into the future," concluded Mr. Pylot.
Investment HighlightsImmediately transforms Capstone into an intermediate copper producer.Annual production from Pinto Valley of 130 - 150 million pounds of copper provides immediate >160% increase in Capstone's copper production.First five year estimated cash cost of $1.80 per pound (net of by-product credits).Further asset diversification into Arizona, USA, one of the world's most favorable mining jurisdictions and aligned with Capstone's existing assets.Work underway aimed at upgrading the 1 billion tonne Measured and Indicated ("M&I") Mineral Resource to extend operations beyond the current reserve life reported by BHP Billiton.Maintained and managed to BHP Billiton's world-class standards.All necessary established infrastructure, permits and skilled workforce in place.
Transaction Overview
The purchase price is being paid in cash and is subject to customary adjustments. The purchase price will be satisfied from Capstone's existing $200 million Senior Secured Revolving Credit Facility ($176 million available) and from a new 2.5-year, $200 million Senior Secured Reducing Revolving Credit Facility, that are respectively committed and underwritten by The Bank of Nova Scotia, and cash on hand. The new facility will include customary covenants and closing conditions, including closing of the Pinto Valley acquisition, and will bear interest at market rates. The acquisition agreement is not conditional upon financing.Under the terms of the agreement, Capstone is committed to maintaining Pinto Valley's existing environmental standards and will provide financial assurances reasonably necessary to obtain regulatory approvals for the transfer of the applicable permits. BHP Billiton employees working at Pinto Valley and SMARRCO will become employees of Capstone as part of the transaction.The purchase agreement includes typical closing conditions, including regulatory approvals. Closing of the transaction is expected to occur in the third quarter of 2013. There can be no assurances the acquisition or the financing will close.Operational HighlightsThe Pinto Valley Mine successfully restarted operations on schedule in December 2012 at a capital cost of $194 million (including approximately $60 million for a new mining fleet), which will be fully funded by BHP Billiton. The restart is progressing well, and is on schedule to achieve a run-rate of over 50,000 tonnes per day by the end of 2013.The mine is projected to employ approximately 650 employees and has all necessary established infrastructure. Key contracts will be in place at closing of the transaction for water, power and access to markets, and a Transitional Services Agreement will be executed with BHP Billiton to provide various administrative services through a defined transition period.Local regulatory and community support has been demonstrated for the mine during both prior operations and the recent re-start. Arizona is among the world's most favorable mining jurisdictions with respect to tax, regulation and labour.Mineral ResourcesThe Pinto Valley property includes a significant amount of mineralization not included in BHP Billiton's publicly-reported Mineral Reserve estimate. Capstone has completed the following NI 43-101 compliant Mineral Resource estimate for the global identified resource, with a technical report to be filed within 45 days.
Mineral Resource Estimate, February 28, 2013, at a 0.25% COG*
Metric Contained Contained
Tonnes Copper Molybdenum Copper Molybdenum
(M) (%) (%) (k tonnes) (M lbs)
Measured (M) 402 0.38 0.010 1,544 40
Indicated (I) 566 0.33 0.008 1,870 45
Total M&I 968 0.35 0.009 3,414 85
Inferred 45 0.33 0.009 146 4
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