AuRico finally dumps Australian mines

Just a few weeks ago, the chief executive of AuRico Gold Inc. told the Financial Post that selling the company’s high-cost Australian assets would go a long way towards building investor confidence.

That deal is now official. AuRico announced it is selling the two mines (Fosterville and Stawell) to Crocodile Gold Corp. for up to $105-million in cash and stock, including $70-million in guaranteed cash.

It is an important transaction for AuRico, which needs to focus on its core assets in North America, particularly the Young-Davidson mine in Ontario. The question is whether it got a good price.

Desjardins Securities analyst Brian Christie valued Fosterville and Stawell at US$168-million and US$131-million respectively, and wrote that the transaction appears dilutive on the surface. However, he still gave it a thumbs-up.

“It provides AuRico with immediate cash and allows management to direct its full attention to its strong portfolio of North American assets — particularly the ramp-up of Young-Davidson,” he wrote in a note. He reiterated his buy rating on AuRico and price target of $14.25 a share.

AuRico picked up the Australian mines when it bought Northgate Minerals Corp. last year, a transaction that netted the Young-Davidson project. The plan was always to divest out of Australia. AuRico used to be known as Gammon Gold and had a history of operating problems, but it has gradually rehabilitated its image over the last few years.

The transaction is also very important for Crocodile, boosting the miner’s 2012 gold production guidance by 155,000 to 175,000 ounces.