Yamana Gold Spins Off Brio Gold
- By Alberto Abaterusso
Yamana Gold (AUY) will spin off Brio Gold through the distribution of the purchase rights of Brio Gold common shares to its shareholders as a dividend in kind.
Once the corporate transaction is completed, the subsidiary of Yamana will continue its mining and exploration activities at its assets, including Pilar mine, Fazenda Brasileiro mine and C1 Santa Luz project, as a stand-alone company.
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The spinoff will allow Yamana to dedicate its mining activities in the core assets only: Chapada and Jacobina mines in Brazil, El Penon and Minera Florida mines in Chile, Canadian Malartic mine in Canada (50% interest) and Gualcamayo mine in Argentina.
With the announcement of this corporate transaction, Yamana gives to its shareholders the following alternative regarding its subsidiary, Brio Gold:
Yamana's shareholders who will exercise their purchase rights will have direct exposure to Brio Gold. These shareholders will benefit from the high operating cost leverage of Brio Gold, but they bear a high risk represented by the uncertainty in future movements of the gold price and the appreciation of local currencies versus the dollar in terms of higher operating costs. Given that analysts now forecast a 60% to 70% probability of Fed rate hikes in the December meeting, the pressure exercised on gold by low interest rates may cease resulting in the end of the uptrending in the price of the precious metal.
Yamana's shareholders who will not exercise their purchase rights will have exposure to Brio Gold only indirectly, that is via Yamana, that will maintain exposure to Brio Gold through a retained equity interest. These shareholders will benefit from Yamana that will focus much better on its strategy to cut costs and have more control on local currencies versus the dollar, might the latter strengthen against the dollar. After all, we don't know how much the Fed will increase interest rates provided it really decides to increase them.
Furthermore the "proceeds from the exercise of the purchase rights and any direct sales of Brio shares will support the company's net debt reduction initiatives and thereby increase the company's financial flexibility to pursue its business plan and strategic objectives." (Yamana's NR).
The sale of the Mercedes mine in Mexico to Premier Gold (PG) plus the sale of share purchase warrants purchasing 15 million shares of Sandstorm Gold Ltd. (SAND) for total net proceeds of approximately $33.55 million, have provided Yamana with approximately $156 million in cash which will be used to reach two targets that the miner set at the beginning of the year: net debt reduction of $300 million in two years until the end of 2017 and a leverage ratio below 1.5 over time.
The details of the offering can be found on Yamana's NR.
Yamana Gold closed at $3.69 per share Monday, up 1.10%, from the previous trading day. The gold stock gained 98.39% year to date and is slightly downtrending since the end of July.
Disclosure: I have no positions in Yamana Gold.
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This article first appeared on GuruFocus.
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