Sherwood Copper and Capstone Mining have entered into a Letter Agreement to combine, by way of a plan of arrangement or other form of business combination, to create a well-funded, low-cost, growth-oriented, copper company with two producing mines in mining friendly jurisdictions in North America. The boards of directors of Sherwood and Capstone have unanimously approved the terms of the transaction. Capstone and Sherwood believe this merger will realise significant benefits for each of the company’s shareholders, including:
- Significant production growth, with forecast production of 85 Mlb of copper in 2008, increasing to 110 Mlb in 2009, with significant by-products of gold, silver, lead and zinc
- Low cost production with forecast total cash costs of under $1.00/lb of payable copper in 2008 and 2009, including all off-site costs and net of by-product credits, generating significant free cash flow to fund corporate growth opportunities
- An aggressive, growth oriented company focused on maximizsng the value of its existing mines, Cozamin and Minto, through sequential increases in resources, reserves and production; the pursuit of value through continual improvements at its operations; the advancement of the Kutcho project towards a production decision and accretive merger and acquisition opportunities
- Diversification of operational and geographic risk with the open-pit Minto copper-gold-silver mine in Canada and the underground Cozamin copper-silver-zinc-lead mine in Mexico
- Increased market capitalisation
- Continued focus on optimisation and cost reduction strategies, with the Cozamin mill throughput set to increase to 3,000 t/d and Minto to 3,200 t/d by the end of 2008. Minto will also reduce exposure to high fuel costs for electrical power generation by connecting to grid power in fourth quarter 2008
- Excellent exploration upside at both the Cozamin and Minto mines, where high grade resources have been increased by 47% and 140%, respectively, over the past two years, exclusive of the results from major exploration programs completed in 2008, many of the results for which are still pending. Sherwood completed 120 holes at Minto and 81 holes at Kutcho in 2008, the results for approximately half of which remain to be reported, while Capstone has completed 7,000 m of underground and 25,000 m of surface drilling at Cozamin, the results of which are to be incorporated into an updated resource and reserve estimate
- A combined management team with complementary experience and a proven track record of building and profitably operating mines to create shareholder wealth, supported by a seasoned and experienced board of directors
- Exposure to the potential development of the Kutcho copper-zinc-gold-silver project in northwestern British Columbia, where a preliminary economic assessment (see Sherwood news release dated June 12, 2008) indicated potential for production of 45 Mlb/y of payable copper at a cash cost of less than $1.00/lb (net of by-product credits) and outlined several opportunities for further project enhancements
- Strong balance sheet to support growth strategies
The board and management structure of the combined company will draw on the expertise of both companies and the board will include four current Sherwood directors, one current director of Capstone and one nominee of Capstone. Colin K. Benner has agreed to serve as non-executive Chairman. Darren Pylot (currently President & CEO of Capstone) will become Vice Chairman and CEO and Stephen Quin (currently President & CEO of Sherwood) will become President & COO of the combined company. Richard Godfrey (currently Chief Financial Officer of Sherwood) will become Chief Financial Officer of the combined company; other senior management from both companies will be integrated into the senior management of the combined company, retaining many of the same responsibilities. Capstone and Sherwood intend to capitalise on the success of their respective strategies for the operation, expansion and exploration of the high grade Cozamin and Minto copper mines, located in Zacatecas, Mexico, and Yukon, Canada.
“Capstone and Sherwood have each looked at numerous merger and acquisition possibilities over the past year and have concluded that this is the most compelling consolidation opportunity in the sector,” said Pylot. “The combined management teams are a great fit, with complementary skills and experience and a common focus on acquiring and operating high grade, low cost operations in mining-friendly, politically stable jurisdictions. Operationally, the high grade Cozamin and Minto copper mines are tremendous assets, and each is undergoing a third expansion program and, combined, should produce more than 100 Mlb of copper at cash cost of less than a $1/lb in 2009. These operations provide an excellent platform for future growth.”
“The combination of Sherwood and Capstone is a highly complementary transaction,” said Quin. “Capstone’s strong cash and investments and modest copper hedging program is complementary to Sherwood’s more leveraged balance sheet and larger copper hedging program (through the end of 2011). Both Sherwood and Capstone have production expansion opportunities at their Minto and Cozamin mines, which we aim to advance as soon as practicable, and Sherwood offers significant organic growth potential through continued exploration success at Minto and a high grade development opportunity at its Kutcho copper project.”