Late last night, Silver Standard Resources (SSO:TSX) announced it has entered into an agreement with Barrick and Goldcorp to acquire their producing Marigold mine in Nevada for $275 million. The mine is owned 66.7% and 33.3% by Goldcorp and Barrick, respectively. The mine produce 162,000 ounces of gold in 2013 and is expected to produce between 142-150,000 ounces in 2014. It is a run-of-mine open-pit heap leach operation that has been in continuous production since 1988.
Marigold hosts 2P reserves of 294.5 million tonnes of 0.52g/t gold material containing 4.92 million ounces of gold reserves. Silver Standard is acquiring these high-quality and stable production ounces at $55 per reserve ounce. It has another, nearly 2 million ounces in measured, indicated and inferred categories. The operation is higher cost for Goldcorp/Barrick at all-in sustaining costs of over $1,400 per ounce. Silver Standard clearly believes it will be able to reduce this cost structure under a more lean company which can focus on improving head grades.
Marigold has consistently produced over 140,000 ounces of gold per year at a +70% recovery rate for many years and should continue to. In silver equivalent ounces (using a 60:1 Au:Ag ratio) Marigold should produce between 8.52 and 9.0 million ounces of silver representing Silver Standard's largest producing asset, overtaking the 8.2 million ounces expected to be produced from their Pirquitas mine in Argentina this year. Silver Standard intends to focus on the higher-grade ore and to reduce the overall strip ratio to reduce operating costs. They are going to complete a new life-of-mine plan which will incorporate newer and more efficient mining equipment.
"The acquisition of Marigold accomplishes our strategic goal of adding an operating mine in a well-established, low-risk mining jurisdiction," said John Smith, President and CEO of Silver Standard. "We are excited to welcome our new team members as Marigold upgrades our portfolio quality whilst leveraging our open-pit mine expertise and financial capacity. We retain our financial capacity to continue internal growth and expect improved corporate operating cash flow going forward as a result of our 2013 cost restructuring program and the addition of the Marigold mine."
This acquisition gives Silver Standard significant gold production to add to its over 8 million ounce per year silver production and 25-30 million pounds of zinc. Silver Standard already owns the Maverick Springs and Candelaria projects in Nevada, but this acquisition will add production to their profile as well as cash flow. Late last year, the company sold its San Agustin project in Mexico to Argonaut Gold for $75 million.
Silver Standard had over $400 million in cash on hand (not including the 19 million Pretium shares the company owns) as of the third quarter of 2013 and it expects to pay for Marigold with its existing cash. The deal is expected to close by April 2014.