Silver Standard Resources Goes for the Gold at Marigold

Continuing to make good on its pledge to shed its least cost-effective assets, Goldcorp (NYSE: GG  ) will be deadheading its productive but high-cost Marigold mine, selling it to Silver Standard Resources (NASDAQ: SSRI  ) for $275 million in cash.

Marigold mine. Source: Goldcorp.

Located in Humboldt County, Nev., Marigold has reliably produced more than 140,000 ounces annually, with recoveries north of 70% for Goldcorp and joint venture partner Barrick Gold (NYSE: ABX  ) , which owns one-third of the mine and will receive $86 million cash for its portion of the project.

Although consistent, Marigold also has unreasonably high all-in sustaining costs in this low-priced gold environment. Goldcorp said last month the mine produced 162,000 ounces of gold in 2013 and was expected to produce between 142,000 and 150,000 ounces this year. Marigold is believed to contain nearly 5 million proven and probable gold reserves, as well as some 620,000 measured and indicated gold ounces. 

It was Goldcorp's last operating mine in Nevada, but it came at a steep cost. The miner has previously said the AISC for its portion of Marigold ran to $1,476 per ounce, while Barrick said its one-third share cost about $1,545 per ounce.

Goldcorp said it wants to reduce its consolidated AISC by 15% to 20% over the next two years and forecasts it will decrease to between $950 and $1,000 per ounce this year. For Barrick, the sale represents part of its ongoing portfolio rationalization; over the last six months it has announced a series of divestitures totaling approximately $850 million. A few weeks ago it announced it would also sell its interest in the Kanowna Belle and Kundana operations in western Australia to Northern Star Resources for $66 million in cash. 

Other miners such as Newmont Mining (NYSE: NEM  ) and Gold Fields (NYSE: GFI  ) are also undertaking a determined review of their assets and jettisoning those that don't comport to the current environment. Newmont sold its Hope Bay project in Canada last year and followed it up by selling its Midas mine in Nevada to Klondex Mines in December. Likewise, Gold Fields spun off all but one of its South African assets as they became uneconomical to operate, while passing on the opportunity to acquire Bezant Resources. However, it did buy Barrick's Yilgarn South assets in western Australia late last year.

For silver streamer Silver Standard, the acquisition represents the realization of its goal to add an operational mine to its portfolio. Although it's a relatively high-cost operation, Marigold is seen as reliable, with high grades of ore and ocated in a low-risk jurisdiction. As gold mining countries in South America, Africa, and elsewhere embark on a campaign of resource nationalism, the risk profile of projects in those locations increases substantially and partially offsets their otherwise low-cost operations.

Even so, Silver Standard will likely find the capital requirements of the mine challenging despite the cash flows it will generate. The markets weren't too keen on the deal, sending its shares down on the day.

The low price of gold and the high level of debt at some miners has created a toxic brew when commingled with the high all-in sustaining costs certain projects present. Along with an accelerated mergers and acquisitions environment, purging these assets from a miner's portfolio's will continue to be the hallmark of 2014.

 

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