McEwen Mining buys Primero’s Black Fox mine

@ @ @ @ @ @ span.10{ font-family:'Times New Roman'; } @@page McEwen Mining (TSX: MUX; NYSE: MUX) is expanding its footprint in the Timmins camp of Ontario with the purchase of Primero Mining Corp.’s (TSX: P; NYSE: PPP) Black Fox mine complex for US$35 million in cash.

"We believe the assets are very complimentary to our recently acquired Lexam VG properties," Rob McEwen, the company’s chairman and founder, wrote in an email to The Northern Miner.

In February, McEwen Mining acquired Lexam VG Gold, whose primary projects in the Timmins Camp are past producers with defined resources and infrastructure that will provide "fantastic synergies" with Primero’s Black Fox mine, McEwen says.

"Our objective is to build a long-term production platform with a robust pipeline of production, development and exploration assets, all feeding into a single processing facility," McEwen explained in a press release. "This acquisition will add immediately to our gold production, but is just the beginning of a new chapter of growth for McEwen Mining."

Black Fox is expected to produce between 50,000 and 60,000 ounces of gold this year at total cash costs of between $850 and $950 per oz. and all-in sustaining costs of between US$1,150 and US$1,250 per oz.

In the second quarter, Black Fox produced 20,731 oz. gold (up from 15,172 oz. in the same quarter of last year) and at total cash costs of $637 per oz., down 27% from the $870 per oz. achieved in the same quarter a year ago.

Underground mining in the quarter was focused on Black Fox’s Deep Central Zone, with grades averaging 7.09 grams gold per tonne, a 59% increase in grade from the year earlier quarter.

Black Fox "has a processing facility with excess capacity, two future development opportunities and excellent exploration potential," McEwen says. "I believe this is a logical and potent combination."

The Lexam properties add measured and indicated resources of 1.47 million ounces of gold and 954,000 inferred ounces of gold to the company’s resource base in Canada.

Jeff Killeen of CIBC calculates that the $35 million deal for Black Fox implies a purchase price of about 0.8 times his prior net present value (5%) for the asset.

As for the Lexam deal earlier this year, McEwen Mining’s management team believes the properties will "enhance" the company’s development and production pipeline "with the potential to commence production of the Timmins properties within 24 months."

The Lexam cluster of four past-producing gold properties on the Abitibi greenstone belt have open pit and underground potential and consist of Buffalo Ankerite, Fuller, Davidson Tisdale and Paymaster.

The projects are situated within two claim blocks, one in the northern part of Tisdale Township (the Davidson Tisdale block, about 5 km southeast of Timmins’ city centre) and a second block of contiguous claims comprising the Buffalo Ankerite, Fuller, and Paymaster properties in Tisdale and Deloro Townships, roughly 9 km to the east-northeast of downtown Timmins.

Outside Canada, McEwen Mining’s other assets are the San Jose mine and the Los Azules copper project in Argentina; the El Gallo gold mine and El Gallo silver project in Mexico; and the Gold Bar project in Nevada.

Joseph Conway, Primero Mining’s interim president and CEO, said the sale of Black Fox will reduce the company’s outstanding debt, but noted that the company will still have outstanding debt that matures in November 2017, which will require additional funding or refinancing to repay in full.

Dr. Volkmar Guido Hable was trained as a physicist and geoscientist and holds a Ph.D. in Geosciences and a B.S. in Agriculture and Agronomics. After graduation, however, he took a slightly different career path and entered the financial world.