Base metals producer Taseko Mines on Tuesday announced the $15-million acquisition of Yellowhead Mining, which owns the Harper Creek copper/gold/silver project in British Columbia, where the company already operates the Gibraltar mine.
With proven and probable reserves of 3.6-billion pounds of recoverable copper, supplemented by 370 000 oz of gold and 15.6-million ounces of silver, Yellowhead is being acquired at a cost of “half a penny per pound of copper” in the reserve base.
“This transaction….supports our long-term strategy of conservatively growing our production by way of meaningful and manageable acquisitions,” Taseko president and CEO Russell Hallbauer said, noting that the Yellowhead project increased the company’s near-term pipeline of 100%-owned reserves to nine-billion pounds of contained copper.
“When Yellowhead is in production, and combined with our producing Gibraltar mine and near-term production from Florence, we anticipate that our annual copper production would exceed 320-million pounds per year, making Taseko one of the largest copper producers in North America," he said.
The Yellowhead feasibility study envisions a 70 000 t/d concentrator at a total pre-production capital cost of about C$1-billion and an average operating cost of $1.46/lb of copper. Using $3/lb copper and an 8% discount rate, the project has a pre-tax net present value of C$1.1-billion.
The Taseko team, however, has been assessing engineering alternatives over the past few years and believes that it could enhance the project's economics, Hallbauer said.
Based on the current feasibility study, copper production will average about 170-million pounds for the first three years after start-up, plus significant gold and silver by-products.
“The project is at a stage where we can advance technical work and reinitiate permitting activities using internal resources, without significant cash expenditures. There is potential for this project to be shovel ready soon after our Florence copper project begins commercial production,” Halllbauer said, referring to the Arizona-based project where the production test facility is currently under construction.
Under the terms of the transaction between Taseko and Yellowhead, each Yellowhead shareholder other than Taseko will receive 1.1484 Taseko common shares for each Yellowhead common share held, representing consideration of $1.00 a share based on Taseko's five-day volume-weighted average price for the period ended December 3.
Taseko's acquisition cost, after taking into account the existing 21% ownership, is $15.1-million in Taseko common shares and will be settled through the issuance of 17.3-million Taseko common shares.
The transaction requires the approval of the Supreme Court of British Columbia and the approval of at least two-thirds of the votes cast by Yellowhead shareholders and a majority of the votes cast by Yellowhead shareholders excluding Taseko, at a special meeting of Yellowhead shareholders to be held in January.
Taseko said that Matco Investments, which holds about 45.5% of the outstanding Yellowhead common shares, had entered into a hard lock-up agreement with Taseko, and that a director who held about 7.2% of the outstanding Yellowhead common shares had also entered into a customary support agreement pursuant to which they have agreed to vote their Yellowhead shares in favour of the arrangement. Together with Taseko, the locked-up shareholders hold 73.7% of the issued and outstanding Yellowhead common shares.