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Yamana Sells Chapada Mine To Lundin Mining For Over $1 Billion

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(Kitco News) - Yamana Gold Inc. (TSX: YRI; NYSE: AUY) has agreed to sell the Chapada copper mine in Brazil to Lundin Mining Corp. (TSX: LUN) for over $1 billion, the companies reported Monday.

Yamana will receive $800 million at closing, up to another $125 million based on the price of gold, a $100 million payment contingent on the development of a pyrite circuit to optimize the operation, and a 2% net-smelter-return royalty on the adjacent Suruca gold project, the companies said. Officials said the deal is expected to close in the third quarter.

Chapada is a copper mine that also has gold production that was developed by Yamana. Suruca is gold project seven kilometers northeast of Chapada.

Yamana said the deal will mean an improved balance sheet and interest savings that will enable the company to increase its dividend. As a result, Yamana’s board of directors has approved a 100% increase in its annual dividend to 4 cents per share, conditional on closing of the transaction, the company said.

Yamana also announced plans to purchase 5% of its outstanding shares on the Toronto and New York stock exchanges.

“While Chapada has been a valued asset for Yamana, the sale transaction delivers a significant gain, delivers a high after-tax return and financially repositions the company with a significant and immediate improvement to overall financial flexibility, thereby allowing the company to pursue near-term value-maximizing portfolio opportunities and also to increase shareholder returns, initially by way of a 100% increase in the annual dividend,” said Peter Marrone, executive chairman of Yamana.

Lundin said the deal increases its annual copper production by over 25% while adding gold output. In 2018, Chapada produced 58,600 tonnes of copper and 121,000 ounces of gold. Output this year is expected to be 54,500 tonnes of copper and 100,000 ounces of gold, the company said.

“Chapada is a well-run, established operation with an experienced local workforce,” said Marie Inkster, president and chief executive officer of Lundin. “Leveraging our technical expertise, base-metals focus and financial strength, we believe further opportunities exist to create meaningful stakeholder value.”

With the sale, the Yamana’s production will come from two mines in Chile and one each in Canada, Brazil and Argentina. Some 85% of the company’s revenue will come from gold and another 15% from silver. With a projected third-quarter closing on the Chapada sale, Yamana projected 2019 production of approximately 1 million gold-equivalent ounces.

Yamana reported that the sale price exceeds the carrying value of the mine, thus the company expects to post a significant after-tax gain. The company also said the sale will mean financial flexibility that allows Yamana to pursue other opportunities to increase production and add to mineral reserves.

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