Selloff: Rio Tinto Sheds Mining Properties as it Fights Billiton's Takeover Bid

Engineering and Mining Journal, Mar 2008

The Pueblo Viejo feasibility study estimates that construction capital requirements would be approximately $2.7 billion-which represents an increase from the $2.1- to $2.3-billion estimate of February 2007, mainly from a throughput rate increase to 24,000 mt/d from 18,000 mt/d. Production is projected to be almost 1 million oz/y of gold during the first full five years of production.

Proven and probable reserves for Pueblo Viejo as of December 31, 2007, were estimated to contain 20.4 million oz of gold, along with 423.6 million lb of copper and 117.3 million oz of silver contained within the gold reserves.

The project is expected to create roughly 3,500 jobs during a 3.5-year construction phase, along with 1,000 jobs when the mine begins operation. Life of mine is currently estimated to be about 25 years. According to Barrick, the project also would include plans to clean up environmental damage from a previous operation.

...and Greens Creek...

Earlier, on February 12, Hecla Mining Co., which owns 29.7% of the Greens Creek polymetallic mine in southeastern Alaska, reported that it would purchase all of the equity of the Rio Tinto subsidiaries that hold the remaining 70.3% interest in Greens Creek. The $750-million purchase price will comprise $700 million in cash and $50 million in Hecla common stock. Hecla said it has received $400 million in debt financing from Scotia Capital, which together with available cash will be used to fund the acquisition. Closing is expected to occur in the second quarter.

In 2007, on a 100% basis, Greens Creek produced approximately 8.6 million oz of silver, 68,000 oz of gold, 63,000 tons of zinc and 21,000 tons of lead. Because of the current value of the mine's by-product metals more than pay for the silver production, the total average cash cost of silver was negative $5.27/oz. Even at metals prices significantly lower than they are today, Hecla estimates a 10-year average cash cost of $1.88/oz of silver at Greens Creek.

Hecla has been a joint venture partner in the mine since 1987, and during a conference call with analysts on February 12 Hecla President and CEO Phil Baker noted that there had been "numerous occasions" when Hecla had looked for ways to acquire full interest in the mine. "Things finally came together in the past few months," said Baker. "Our financial capabilities came together with Rio Tinto's willingness to part with this asset."

Labeling the purchase a "company transforming transaction," Baker said the acquisition would change the nature of Hecla "because of what it does to our production and our costs, and what it does to us relative to other companies in the sector. It further improves our position as the lowest cost silver producer.

"We also see [Greens Creek] as being one of the best exploration properties in the silver sector," said Baker. "It's been in operation more than 20 years, we have ten years of reserves on the books, and we think we'll grow that."

Baker noted that the acquisition would double Hecla's silver production to more than 11 million oz/y, increase silver reserves by about 150% and gold by 140%, and increase cash flow significantly.