October 10, 2012 / 4:48 PM / 5 years ago

AuRico Gold shares rise on $750 million sale of Mexican mine

TORONTO (Reuters) - Shares of AuRico Gold Inc AUQ.TO soared more than 16 percent on Wednesday, a day after the Canadian gold miner said it will sell its Ocampo mine in northern Mexico to Mexican tycoon Carlos Slim’s Minera Frisco for $750 million.

Minera Frisco will also gain control of the nearby Venus and Los Jarros exploration properties, along with a 50 percent stake in AuRico’s Orion project in southern Mexico as part of the all-cash deal, which is expected to close in December.

AuRico has struggled to meet its production targets at Ocampo, with an underground expansion at the mine moving more slowly than expected and labor disputes weighing on output. The company’s shares have dropped 25 percent over the past nine months.

But investors were encouraged by the Ocampo deal, and the company’s shares were up 16.45 percent at C$7.29 at midday on Wednesday on the Toronto Stock Exchange.

“This transaction offers a very attractive price to AuRico and our shareholders, and further derisks our production profile by allowing us to realize the value of Ocampo today and not sometime in the future,” AuRico Chief Executive Scott Perry said on a call with investors on Wednesday.

Perry added that the $750 million will give the company flexibility at its other operations, and support “a one-time meaningful return of capital to shareholders”.

The Toronto-based miner will now shift its focus to increasing output at its newest mine, the Young-Davidson project in northern Ontario, and to expansion opportunities around its El Chanate mine in Mexico’s Sonora state.

The Young-Davidson mine, which poured first gold in April, is expected to produce 65,000-75,000 ounces of gold this year and 135,000-155,000 ounces in 2013, while El Chanate is on target to produce 78,000 to 88,000 ounces in 2012.

Despite the positive investor response to the Ocampo sale, some worried that AuRico had given up too many ounces of gold resources at a time when the gold price is expected to rise on worries about the health of the global economy.

“While this transaction reduces operating risk, it negatively impacts its production profile and option value in rising gold price environment,” National Bank Financial mining analyst Paolo Lostritto said in a note to clients on Wednesday.

Lostritto lowered his target price for AuRico shares to C$7.50 from C$10.25 to reflect the asset sale.

Reporting by Julie Gordon; Editing by Peter Galloway

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