Marigold Mine buyer: Revenue diversification is key

Silver Standard Resource’s announcement last week that it would acquire the Marigold Mine in Humboldt County was a strategic acquisition that provides Silver Standard with another stable revenue-producing asset, President and Chief Executive Officer John Smith says.

Silver Standard purchased the mine from Goldcorp of Vancouver and Barrick Gold Corp. for $275 million in cash and expects to close the transaction in April. Marigold is an open-pit mine that began producing gold in 1988 and recorded production of 162,000 ounces in 2013. Guidance for 2014 ranges from 142,000 to 150,000 ounces of gold. The mine employs 360 workers.

“Adding Marigold to the existing Silver Standard portfolio transforms us into a multi-mine producer, and we retain our financial capacity to fund future growth,” Smith told analysts in a conference call last week. “All in all, this is a transformative transaction. We add immediate operating cash flow and substantial mineral reserves, and we also add a team at Marigold mine that operates to world-class standards.”

The mine was run as a joint venture between Goldcorp, which owned 66.7 percent of the asset, and Barrick Gold. Smith says the two mining titans invested $150 million over the past two years in larger mining equipment, exploration, improved production systems and employee development programs. Silver Standard had been scouring the market seeking an acquisition to increase its portfolio and position within the precious metals industry. The Vancouver-based company owns and operates its Pirquitas Mine in northern Argentina. The mine produced 8.2 million ounces of silver and 27 million pounds of zinc in 2013.

Smith says the downturn in precious metals prices, coupled with proven and probable mineral reserves at Marigold, provided the right combination upon which to act. Marigold, located at the northern corner of the Battle Mountain-Eureka Trend, has proven and probable reserves of 4.9 million ounces of gold.

“Marigold has seen a trend through 2012 where the mine saw increased costs but also increased operating margins,” Smith says. “The capital investment over past two years made by Goldcorp and Barrick was made to reduce the overall cost structure.

“We will focus on cost structure and margin,” he adds. “Marigold in an established gold producer that accomplishes our strategy to upgrade our portfolio and create a multi-mine producer. The mine provides us with meaningful scale and operating cash flow.”

Purchasing the mine with cash on hand also allows Silver Standard to maintain a strong financial position and fund future growth, Smith adds. It also hedges Silver Standard shareholders from price fluctuations in the silver market and adds exposure to gold. Silver Standard will focus on developing a new mine plan that targets lower strip mining ratios with higher-grade ores to further reduce operating costs.

Goldcorp and Barrick in 2013 had invited multiple parties to conduct due diligence on the Marigold property and tender offers as both firms place renewed focus on their core gold producing assets.

“This transaction is consistent with Goldcorp’s ongoing strategy of disciplined portfolio management,” Goldcorp’s President and Chief Executive Officer, Chuck Jeannes, said in a statement. “Marigold has been an important contributor to the growth of Goldcorp.”