Timmins Gold Corp. is pleased to announce that it has entered into an Asset Purchase Agreement with Goldgroup Mining Inc. to purchase 100% of the Caballo Blanco Gold Project, a gold development project in Veracruz State, Mexico for total consideration of US$10 million in cash and 16,065,000 Timmins Gold shares.
Transaction Highlights:
- Accretive to Key Metrics: The transaction will be immediately accretive to Net Asset Value and mineral resources and is expected to be accretive to operating cash flow, EBITDA and other key operational metrics once in operation based on current gold prices;
- Leverages Operational Success: The proposed project is a Mexican open pit/heap leach operation similar to the San Francisco mine, providing opportunity to leverage past success in permitting, building and operations;
- Expanded Resource Base with Exploration Upside: Will significantly grow current resource base with the addition of 575,000 ounces of gold ("oz Au") indicated and 419,000 oz Au inferred mineral resource along with potential for meaningful exploration near existing resources and within a sizeable, underexplored land package;
- Enhances Production Profile: When added to the Company's current production, the projected production from the project would nearly double Timmins Gold's annual production to over 220,000 oz Au with the addition of ~90,000 oz Au at a projected cash cost of $784 per ounce and moves operating profile in line with other mid-tier producers; and
- Rerating Potential: Expanded resource base and strengthened production profile will allow Timmins Gold to potentially realize higher valuation multiples.
Mr. Bruce Bragagnolo, CEO of Timmins Gold, stated, "The acquisition of Caballo Blanco will accomplish our strategic goal of adding a highly prospective gold mining project at an attractive valuation in Mexico, a very familiar, well-established and low-risk mining jurisdiction."
"The Transaction structure allows us to retain our current financial flexibility, and is expected to improve our corporate operating cash flow once Caballo Blanco is producing."
"We believe Caballo Blanco is an extremely promising project, even at current gold prices, and we look forward to optimizing the current PEA mine plan while continuing to execute our growth objectives."
Transaction Overview
Under the terms of the Agreement, Timmins Gold will acquire a 100% interest in Caballo Blanco for consideration of US$10 million in cash plus the issuance of 16,065,000 Timmins Gold shares. Timmins Gold has also agreed to pay to Goldgroup a contingent payment of an additional US$5 million when Caballo Blanco receives its permit or Timmins Gold undergoes a change of control. The additional payment, if made, can be paid at Timmins Gold's option in cash or Timmins Gold shares. All shares issued in connection with the transaction will be subject to a hold period expiring four months and a day after issuance. The Caballo Blanco Project is subject to a 2% NSR in favour of a third party.
Completion of the transaction is subject to customary closing conditions, including the delivery and registration of certain title documents and approval of the TSX and the NYSE MKT. Timmins Gold expects the transaction to close in December, 2014.
Caballo Blanco Project Overview
Caballo Blanco is an advanced stage open pit, heap leach gold project located 65km Northwest of Veracruz, Mexico. The project consists of two large areas of epithermal gold mineralization, the Northern Zone and the Highway Zone, contained within 13 mineral concessions covering over 54,000 hectares. Caballo Blanco has easy access via paved roads, on-site power and clean water.
A Preliminary Economic Assessment was completed on Caballo Blanco entitled "Preliminary Economic Assessment Caballo Blanco Gold Heap Leach, Veracruz, Mexico", dated May 7, 2012, (the "PEA") prepared by Joseph M. Keane, Brent C. Bailey, Jim Cuttle, Gary Giroux, Stephen Taylor and Dino Pilloto, all of whom are independent Qualified Persons as defined in NI 43-101. The PEA discloses a Measured & Indicated Resource of 575,000 oz Au (28.9 million tonnes grading 0.62 g/t Au) and an Inferred Resource of 419,000 oz Au (24.0 million tonnes grading 0.54 g/t Au). To the best of the Company's knowledge, information and belief there is no new material scientific or technical information that would make the disclosure of the mineral resources or the PEA inaccurate or misleading. For a full discussion of the sampling, analysis, quality assurance, quality control, and other technical disclosure relevant to the project, please see the PEA which is available on SEDAR under Goldgroup's profile at www.sedar.com.
Highlights of the PEA include:
- A pre-tax NPV of US$128.2 million and IRR of 37.5% at a gold price of US$1,200 per ounce and a discount rate of 5%;
- A pre-tax NPV of US$283.8 million and IRR of 66.4% at a gold price of US$1,500 per ounce and a discount rate of 5%;
- A Life-of-Mine ("LOM") strip ratio of 1.66, with an initial strip ratio of 0.5 and 1.3 in years one and two, respectively;
- Anticipated gold recovery of 80.7% based on current metallurgical testing;
- Expected annual production of ~90,000 ounces of gold, for a total production of 687,000 ounces of gold and 1.3 million ounces of silver over the current 7.5 year life of mine;
- Total cash operating cost of $784 per ounce of gold; and
- Initial capital costs of $84.8 million.
Timmins Gold believes that the current resource can be expanded and the project economics described in the PEA can be improved with additional drilling, metallurgical test work, and a review of the capital expenditures. As more fully described below, Timmins Gold plans to update the current resource estimate and carry out an extensive optimization of the PEA in the coming months, including reviewing whether the project can become a run of mine operation.