FRESNILLO PLC Fresnillo plc
Binding agreement signed to acquire Newmont Mining's 44% interest in the Penmont Joint Venture
Highlights
· The acquisition of Newmont's 44% stake in the Penmont Joint Venture ("JV"), comprising the Herradura, Noche Buena and Soledad Dipolos mines, the Mega Centauro and Centauro Deep advanced exploration projects and a number of key exploration prospects, for a total cash consideration of US$450 million
· Fresnillo currently holds a 56% interest in the JV and would hold a 100% interest post completion of the acquisition
· Consolidates control of producing and exploration assets already operated by Fresnillo and builds on the Company's leading position in the Herradura Corridor, one of Mexico's most prospective gold belts
· Enables Fresnillo to implement strategy of developing quality assets in a key growth area and continue aggressive regional exploration programme:
o Mega Centauro and Centauro Deep advanced exploration projects with near-term production potential; lower risk as they are expansions of current ongoing operations
o three key exploration projects: Tajitos, Bellavista and Las Norias
o multiple additional exploration targets identified
· The acquisition is consistent with previously announced growth strategy and meets Fresnillo's key acquisition criteria:
o transaction is immediately earnings accretive, with further upside potential from Mega Centauro and Centauro Deep
o average life of mine All-In Sustaining Costs (AISC) on current and future production is expected to be low
o significant exploration and development upside potential
· Adds 2.0 million ounces to reserve and 5.1 million ounces to resource base
· The acquisition is conditional on Fresnillo shareholder approval. A circular setting out further details of the transaction, together with the notice convening the general meeting, will be published and posted to Fresnillo shareholders
Octavio Alvídrez, Chief Executive Officer of Fresnillo plc, said:
"The acquisition of the Penmont assets from our JV partner Newmont would see Fresnillo assume control of a quality portfolio of assets which would significantly enhance our gold production and be central to our growth. Acquiring full control of the Penmont assets would enable us to both maximize the value of current producing mines which we have extensive experience in operating, and unlock further long-term value from Herradura as a highly prospective region where we have a strong track record of exploration success. We are excited by the exploration potential that it represents, with three of our key exploration projects in the Herradura Corridor, and a variety of additional targets already being drilled.
"Acquiring full control of the Herradura and Noche Buena mines and the key exploration assets in the JV should enable us, with our current operations, to increase our target of reaching 500,000oz of attributable gold production by 2018 to 750,000oz.
"At a time when many industry peers are rationalizing their portfolios, this transaction illustrates the ability of a conservatively managed business like F resnillo to take advantage of long-term value opportunities by investing through the commodity price cycle.In line with our disciplined growth strategy, the acquisition is earnings accretive, and provides Fresnillo with significant exploration and development potential in a region where we are experienced operators."
The acquisition
Fresnillo plc ("Fresnillo" or the "Company") is pleased to announce that it has entered into a binding agreement to acquire the 44% interest held by Newmont Mining ("Newmont") in the JV (the "Newmont Interest"). The transaction is subject to Fresnillo shareholder approval. Assuming all conditions are satisfied or waived (where applicable), Fresnillo currently expects the acquisition to be completed by early October 2014.
Under the terms of the acquisition, Fresnillo will acquire the Newmont Interest in the JV for a total cash consideration of US$450 million.
The Penmont assets are key to Fresnillo's current and future gold production, and are expected to contribute strongly to the Group's growth profile as Mega Centauro and Centauro Deep extend the region's production profile.
Herradura has been in production since 1997, with total reserves of 2.7 Moz. Noche Buena has been in production since 2012 and has total reserves of 1.1 Moz. Herradura's average annual gold production between 2014 and 2019 is projected to be 350,000 oz, and Noche Buena is expected to produce an annual average of 165,000 oz over this period.
As a result of the gold production ramp up at Herradura in combination with the new dynamic leaching plant, processing capacity needs to be enhanced in order to meet our longer term gold production targets. The impact of work to improve production efficiency is estimated to reduce 2014 target production of 450koz by 4-8%. We are confident that the reduction in 2014 production will be made up in 2015. This does not impact our long-term expectations on production, and following the acquisition our 2018 guidance for gold production would increase to 750koz.
Based on its extensive geological knowledge of the area and its experience operating open pit mines in the region and underground mines in Mexico, the Company has produced a preliminary assessment for the Mega Centauro and Centauro Deep projects, both of which are expected to enter development in 2015, ahead of first production in 2016 and 2017 respectively. The Mega Centauro project is expected to have an average annual gold production of 200Koz, while the Centauro Deep project is expected to average 225Koz. Total investment for the Mega Centauro and Centauro Deep projects is estimated at US$150 million and US$365 million respectively, resulting in the potential to generate a combined IRR for both projects in the low to mid-teens at current gold prices. Based on initial assessments, the life of mine of Mega Centauro and Centauro Deep is 12 and 10 years respectively. All the above numbers represent management's best estimate using currently available information and further analysis and exploration work are required before a feasibility study can be presented to the Board for final approval.
Expected 2015 capex for the Herradura Corridor, subject to completion of the proposed acquisition and Board approval:
• US$75.4m for current operations at Herradura and Noche Buena (stripping not included)
• US$49.2m for Mega Centauro (stripping not included) and Centauro Deep projects
• US$15.0m for exploration projects
As Newmont is interested in 44% of companies which comprise the JV, which are subsidiary undertakings of Fresnillo, the acquisition constitutes a related party transaction for Fresnillo under chapter 11 of the Listing Rules of the United Kingdom. As such, completion of the acquisition is conditional, amongst other things, on approval being received from the shareholders of Fresnillo at a general meeting of the Company. A circular setting out further details of the acquisition, together with the notice convening the general meeting will be published and posted to Fresnillo shareholders.
In accordance with Listing Rule 10.4.1R (2), the Company also informs as follows:
The sum of the gross assets of the Newmont Interest as at 31 December 2013 is US$605.7 million (US$516.1 million, net of intercompany transactions), being 44% of US$1,376.6 million, the total gross assets of Penmont as extracted without material adjustment from the Minera Penmont audited financial statements for the year ended 2013. The profits attributable to the Newmont Interest were US$33.4 million (pre-tax), being 44% of US$76.0 million, the total profits of Penmont for the year ended 2013, as extracted without material adjustment from the Minera Penmont audited income statement for the year ended 2013.
Following the acquisition, the management team will remain unchanged with the executive committee being composed of Octavio Alvídrez (CEO), Mario Arreguín (CFO), David Giles (VP Exploration) and Roberto Díaz (COO).
A live conference call & audio webcast will be held at 8:30am (BST) on Friday 12 September for analysts and investors. Details as follows:
For a live webcast of the presentation please click on the link below:
http://www.media-server.com/m/p/efyckcrs
Conference call dial in details:
UK: +44 (0)20 3427 1906 (Please use the following confirmation code: 3256509 )
A recording of the conference call will be available for one week following its conclusion, accessible from the following telephone number:
UK: +44 (0)20 3427 0598 (Access code:3256509 )
The On Demand version of the webcast will be available within two hours after the end of the presentation and is accessible using the same webcast link.
For further information, please visit our website: www.fresnilloplc.comor contact:
Fresnillo plc
London Office Tel: +44 (0)20 7399 2470
Gabriela Mayor, Head of Investor Relations
Floriana Michalowska
Mexico City Office Tel: +52 55 52 79 3206
Ana Belem Zárate
Bell Pottinger T el: +44 (0) 203 772 2500
Daniel Thöle
Marianna Bowes
About Fresnillo plc
Fresnillo plc is the world's largest primary silver producer and Mexico's second largest gold producer, listed on the London and Mexican Stock Exchanges under the symbol FRES.
Fresnillo has six operating mines, all of them in Mexico - Fresnillo, Saucito, Ciénega (including the San Ramón satellite mine), Herradura, Soledad-Dipolos1 and Noche Buena; two development projects - Saucito II and San Julián; and four advanced exploration prospects - Centauro Deep, Juanicipio, Orisyvo and Las Casas Rosario as well as a number of other long term exploration prospects. In total, Fresnillo plc has mining concessions covering approximately 2.1 million hectares in Mexico.
Fresnillo has a strong and long tradition of mining, a proven track record of mine development, reserve replacement, and production costs in the lowest quartile of the cost curve for both silver and gold.
Fresnillo's goal is to maintain the Group's position as the world's largest primary silver company, producing 65 million ounces of silver and 750,000 ounces of gold by 2018.
Forward-looking statements
Information contained in this announcement may include 'forward-looking statements'. All statements other than statements of historical facts included herein, including, without limitation, those regarding the Fresnillo Group's intentions, beliefs or current expectations concerning, amongst other things, the Fresnillo Group's results of operations, financial position, liquidity, prospects, growth, strategies and the silver and gold industries are forward-looking statements. Such forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the actual results of the Fresnillo Group's operations, financial position and liquidity, and the development of the markets and the industry in which the Fresnillo Group operates, may differ materially from those described in, or suggested by, the forward-looking statements contained in this document. In addition, even if the results of operations, financial position and liquidity, and the development of the markets and the industry in which the Fresnillo Group operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. A number of factors could cause results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in regulation, currency fluctuations (including the US dollar and Mexican Peso exchanges rates), the Fresnillo Group's ability to recover its reserves or develop new reserves, including its ability to convert its resources into reserves and its mineral potential into resources or reserves, changes in its business strategy and political and economic uncertainty.
1Operations at Soledad and Dipolos are currently suspended.
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