COBRE DEL MAYO ANNOUNCES THE ACQUISITION OF 100% OF THE... OF KUPARI HOLDINGS AND THE RELEASE OF A COMBINED NI...

Transcription

COBRE DEL MAYO ANNOUNCES THE ACQUISITION OF 100% OF THE... OF KUPARI HOLDINGS AND THE RELEASE OF A COMBINED NI...
COBRE DEL MAYO ANNOUNCES THE ACQUISITION OF 100% OF THE COMMON STOCK
OF KUPARI HOLDINGS AND THE RELEASE OF A COMBINED NI 43-101 COMPLIANT
RESERVE AND RESOURCE UPDATE REPORT
The Transaction
Two of our three shareholders (“Parent Companies”), Frontera Copper Corporation (“Frontera”) and
Frontera Cobre del Mayo Mexico (“Frontera Mexico”), have acquired all of the common shares of Kupari
Holdings, S.A. and contributed them to Cobre del Mayo S.A. de C.V. as fresh equity. Frontera and Frontera
Mexico acquired these shares for cash. Frontera and Frontera Mexico have also committed to acquire all of
the preferred shares of Kupari Holdings subject to the approval of the Mexican Federal Economic
Competition Commission (Comisión Federal de Competencia Económica or “COFECE”). Upon receipt of
the COFECE Authorization, (i) Frontera will cause approximately $42.5 million of the preferred stock of
Kupari Holdings to be conveyed in payment of debts of this same amount owed to Cobre del Mayo and (ii)
pursuant to an agreement among the Parent Companies and Cobre del Mayo, the remaining preferred stock
will be contributed as additional equity to Cobre del Mayo no later than February 1, 2016. The preferred
shares convey the right to a nominal dividend, are perpetual and do not generally have the right to vote.
Our third shareholder, Lawrie Associates LLP, has committed to subscribe $15.5 million of additional equity
of Cobre de Mayo by October 17, 2014.
Through its wholly owned subsidiaries, Kupari Holdings owns and operates a flotation plant adjacent to the
Piedras Verdes Mine that processes refractory and vein type copper ore that it purchases from Cobre del
Mayo. As a consequence of these transactions, Cobre del Mayo will own and operate the floatation plant and
will be able to directly process its copper ore both by leaching and by flotation.
Corporate Structure Giving Effect to the Kupari Acquisition
1
About Kupari Metals
In February 2012, Cobre del Mayo entered into an Ore Purchase and Sale Agreement with Kupari Metals
that required them to build and operate a flotation plant adjacent to Piedras Verdes principally to process
refractory and vein type ores, that are more amenable to concentration and smelting than heap leaching and
SX/EW.
During April 2013, Kupari Metals began operations at its flotation plant at Piedras Verdes, with a nameplate
feed capacity of 5,800 tpd. After a two-month ramp-up period, the flotation plant achieved a stable feed to
the primary mill of approximately 5,500 tpd.
Cobre del Mayo has sold its ore to Kupari Metals at prices that are a function of the market price of copper,
the amount of and grade of the ore delivered and the recovery rates, net of certain processing charges. Kupari
Metals has been responsible for the sale of the copper concentrate that it produces.
Merits of Combination
The Kupari Acquisition will fully integrate Kupari into Cobre del Mayo and will:
— Provide enhanced strategic value as a combined entity
— Simplify and optimize ore allocation among processes (ROM, crushed leach, high grade crushed leach
and floatation).
— Facilitate process improvements that involve both heap leaching and flotation
— Diversify operational risk across another process and product
Kupari owes interest-bearing debt of approximately $95.7 million to Banco Azteca and RPG Structured
Finance with serial maturities through 2019. Cobre del Mayo will use the $15.5 million of additional cash
equity to pay part of the RPG debt. Net debt after giving effect to this will be $80.2 million.
Cobre del Mayo acquired Kupari in exchange only for the issuance of equity to its current shareholders and
the assumption of the $80.2 million of debt, it paid no cash. Kupari’s EBITDA for the last twelve months
ending June 30, 2014 was $28.9 million. The net debt assumed divided by Kupari’s LTM EBITDA is 2.8x.
Cobre del Mayo’s prior leverage of 3.1x will therefore decrease as a consequence. We therefore believe this
transaction to be favorable to Cobre del Mayo and to its debt holders.
For the twelve months ended June 30, 2014, Cobre del Mayo sold approximately 29,229 tons of copper
cathode and generated sales of approximately $236.9 million, EBITDA of approximately $77.2 million.
Giving effect to the Kupari acquisition we would have sold an additional 13,266 tons of copper contained in
concentrate, and would have generated sales of $288.9 million, EBITDA of $106.1 million.
NI 43-101 Compliant Resource and Reserve Update Report
In the context of the negotiations for the acquisition of Kupari Holdings by the Parent Companies and as part
of the associated due diligence, a new NI 43-101 compliant resource and reserve update was commissioned
with AGP Mining Consultants Inc. which reflects a new life of mine production schedule and the results of
approximately 142,000 linear meters of additional exploration drilling. It also gives effect to the Kupari
Acquisition, incorporating heap leaching and flotation to process copper ore. This report is available on the
Investors Section of our website (www.cobredelmayo.com), a summary follows:
Based on the current resource model and mine plan the Piedras Verdes Life-of-Mine (LOM) Plan, the report
projects results as follows:
⎯ Average production of ~47 kt/a (~103 Mlbs) of copper annually over a remaining 15+ year mine life.
⎯ Total production of ~790 kt (~1.7 Bn lbs) of copper over the current life of mine.
⎯ LOM cash costs are estimated at $1.65/lb copper (excluding royalties).
⎯ The project NPV (8%) is estimated at $1,196 M based on assumptions described therein.
⎯ Mineral Reserves as summarized below:
2
Classification
kt of Ore
Proven ......................................................................................................
273,610
Probable....................................................................................................
144,860
Pit Proven and Probable ...........................................................................
418,470
Stockpile – Probable ................................................................................1,870
Total Proven and Probable ..............................................................
420,340
%TCu
Kt of Cu Contained
0.27
0.26
0.27
0.33
0.27
739
377
1,116
6
1,122
Conference Call Information:
The Company will host a conference call on Wednesday October 15, 2014 at 11:00 a.m. EST to explain this
transaction and answer questions.
Dial in information:
⎯ Toll free numbers:
• US/Canada: 866 240 5139
• UK: 0800 229 1400
• Mexico: 01800 681 9522
• Switzerland: 0800 121 040
⎯ Toll numbers:
• US: 713 481 0091
3
Appendix: Summary Results of Kupari Metals1
In anticipation of the commissioning of the Flotation Plant, Cobre del Mayo strategically stockpiled highgrade ore to take advantage of superior recoveries achievable by flotation relative to heap leaching and
solvent extraction and electrowinning. The average grade of the ore purchased during the second quarter of
2013 was of 1.33% (equivalent to 5.6 kt of copper contained in ore). Recoveries during this period were
70.8% resulting in a production of 4.01 kt of copper contained in concentrate with an average grade of
27.6%. As a result, during this period total sales reached $22.2 million, EBITDA $8.2 million, and cash cost
was $2.19/lb of copper contained in concentrate produced.
During the third quarter of 2013, Kupari Metals purchased 444.2 kt of ore from Cobre del Mayo with an
average grade of 1.03%, an ore grade 22.5% lower than during the second quarter of 2013. Recoveries
increased 12.2 percentage points from the second quarter to the third quarter of 2013 to 79.4% resulting in a
production of 3.6 kt of copper contained in concentrate. During this period total sales reached $24.3 million,
EBITDA $7.8 million, and cash cost, $2.13/lb.
High-grade stocks of Kupari Metals were depleted by the end of the third quarter of 2013. The Reserve and
Resource Report published by Kupari Metals in August 2014 expects that the grade of the flotation ore will
vary over the life of the mine between 0.45% and 1.30%.
During the fourth quarter of 2013, Kupari Metals had a 15-day operational stoppage; as a result it purchased
397.5 kt of ore, or 10.5% less than in the second quarter of 2013, with an average grade of 0.80%. This
resulted in a decline between these two periods of 30.7% in the copper contained in concentrate produced
during this period of 2.5 kt. Thus total sales reached $15.9 million, EBITDA $5.7 million, and cash cost,
$2.08/lb.
During the first quarter of 2014, Kupari Metals processed 5.5 ktpd with an average grade of 0.86% and a
recovery of 78.3%, which resulted in a copper contained in concentrate production of 3.3 kt. Total sales were
$19.5 million, EBITDA was $6.3 million and cash cost was $2.27/lb.
During the second quarter of 2014, Kupari Metals processed 5.6 ktpd with an average grade of 0.80% and a
recovery of 85.1%, which resulted in a copper contained in concentrate production of 3.5 kt. Sales totaled
$22.0 million, EBITDA was $8.8 million and cash cost was $2.02/lb.
Since startup of the Flotation Plant, recoveries have improved from 70.8% in the second quarter of 2013 to
85.1% in the second quarter of 2014. After the depletion of the high-grade stockpiles late in the third quarter
of 2013, the grade of the ore processed has averaged 0.82% and copper contained in concentrate has
remained at or slightly above 37 tpd.
1 The
calculation of Kupari Metals cash costs referred to below includes treatment and refining charges, the cost of the ore purchased
from Cobre del Mayo, operating costs and handling and transportation costs.
4