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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

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Friday, January 8, 2010

Goldcorp Lets Option Expire, Terrane to Seek Financing for Mt. Milligan

Goldcorp ($GG) (TSE:G) decided to let expire an option to convert its non-voting preferred shares in Vancouver-based Terrane Metals ($TRXOF) (CVE:TRX) to voting common shares. Goldcorp will maintain its 60 percent non-voting preference interest in Terrane Metals.

This decision clears up the ownership of Terrane Metals which will now start looking at options for financing the construction of the project.

In a statement, Goldcorp CEO Chuck Jeannes called the Mt. Milligan project an "outstanding asset." Furthermore, he said, "Goldcorp believes that the best way to continue participating in the bright future of this project is through our equity interest in Terrane."

Robert Pease, President and CEO, Terrane, Metals stated: "With project ownership now clarified, Terrane will move forward with financing alternatives to develop the Mt. Milligan project. Terrane shareholder value is firmly underpinned by a six million ounce, low-cost and construction-ready reserve."

History
Goldcorp sold the Mount Milligan project and certain other Canadian exploration properties to Terrane in July 2006, for 240-million convertible preferred shares in Terrane.

The companies announced in May 2008 that Goldcorp would guarantee the C$40-million credit line and, during the term of the credit facility, would have the option to convert preferred shares in Terrane into a joint-venture interest in the project.

The option expired today and Goldcorp has extended a C$40 million credit facility through May 7 to give the emerging gold producer time to arrange financing for C$172 million to begin construction in 2010. It is expected the nearly 3-year Mt. Milligan project will cost C$915-million to build.

The Future
A feasibility study update completed last year forecast average annual production of 262,000 ounces of gold and 89-million pounds of copper for the first six years of a 22-year mine life.

The study projected gold production byproduct cash costs at negative $8 per ounce, using an average gold price of $800 an ounce and copper price of $2 per pound. Gold is currently trading at $1,130 an ounce. Copper is currently trading at $3 a pound.

Mt. Milligan will be a conventional open pit mine with a 60,000 ton per day copper processing plant. The feasibility study projected average annual production of 262,100 ounces of gold and 89 million pounds of copper for the first six years of a 22-year mine life.

Pease said last month that Terrane hoped to start construction in the second quarter of this year, and is targeting commercial production in the fourth quarter of 2012.

Terrane Metals was a speculative recommendation in the November 2009 issue of the Gold Stock Strategist newsletter at $0.80 per share and, at today's share price, is up 31 percent since being recommended 10 weeks ago.



Shares of Terrane Metals are down about 7 percent this afternoon, with an OTC price of $1.05 per share and volume of almost 1.1 million shares. Shares of Goldcorp are up 0.65 percent at $42.08.

Disclosure: Long Terrane Metals

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