In what Aeris Resources’ (ASX: AIS) managing director, Andre Labuschagne, called a “transformational” deal, the Queensland copper miner and explorer has received strong investor support to diversify into gold after announcing this week it will purchase the Cracow gold mine in Queensland from Evolution Mining (ASX: ENV).
Refusing to let COVID-19 disrupt its growth plans, Aeris expects the Cracow acquisition to be completed on 30 June.
The initial payment to Evolution of $60 million cash will be followed by a deferred payment of $15 million on 30 June 2022, plus a 10% net value royalty from 1 July 2022 to 30 June 2027 that is capped at $50 million.
It means the maximum purchase price for Cracow is $125 million, to be paid over seven years.
Aeris has made no secrets of a desire to expand its asset base to build on the work it has done to restructure its balance sheet and streamline operations at its flagship Tritton copper mine in NSW.
And the company’s entry into gold could not have come at a better time, with many analysts predicting that gold will top US$2000/oz before the end of the year.
Mr Labuschagne said that Cracow would be immediately earnings accretive and provide Aeris with “asset and commodity diversity, strong cashflow generation and high value synergies”.
“Cracow will be a perfect fit for the unique skill set of our management team, who have a track record of extracting value and life extensions, as demonstrated at the Tritton mine, and previously with Norton Gold Fields and the Paddington Gold mine (in Western Australia),” he said.
Cracow is a high-grade underground gold mine about 500km north-west of Brisbane. The mine has produced 1.4 million ounces since it started production in 2004.
The mine acquisition includes a highly prospective 903km2 tenement package that Aeris intends to aggressively explore over the next two years, using a $13 million budget to develop the Killarney, Kenneth and Sterling brownfields targets and Ballymore, Northwest Corridor and Boughyard greenfields regional opportunities.
Mr Labuschagne said Aeris was inheriting a well-run, proven operation that had been a consistent performer.
He said Aeris’ immediate focus would be on “transitioning Cracow into the Aeris culture and aggressively investing in the mine life extension opportunities we have identified”.
Cracow comes with a 2.55 million tonne resource grading 4.21 grams per tonne gold.
The mine is forecast to produce between 82,000-87,000oz this financial year – at all-in sustaining costs of $1200 to $1250/oz – and 70,000-75,000oz in 2020-21.
Aeris told investors that Cracow was forecast to deliver positive net mine cashflow of more than $100 million over the first two years of ownership, based on the current gold price, to boost the enlarged company’s earnings before interest, depreciation and amortisation to between $272 million and $282 million on a pro-forma basis.
Aeris will fund the Cracow acquisition through a multi-pronged financing plan that includes a $7.3 million share placement and $32.7 million 2.01-for-one renounceable entitlement offer, both priced at 3¢. Bell Potter and Euroz Securities are joint lead managers and underwriters.
In addition, Aeris has also secured a $30 million bridge debt facility with existing lender SPOV.
Aeris said it had secured commitments from its three largest shareholders, speaking for about 60% of the register, to commit to participate in the equity raising.
Jefferies (Australia), HopgoodGanim Lawyers and Cannings Purple acted as advisers to Aeris.