RioTinto Eagle Mine sold for $325 million
Lundin Mining Corporation (TSX: LUN) (OMX: LUMI) (“Lundin Mining” or the“Company”) has announced that it has entered into a definitive agreement with Rio Tinto Nickel Company, a subsidiary of Rio Tinto plc (“Rio Tinto”) to purchase its 100% ownership stake in Rio Tinto Eagle Mine, LLC, which owns the high grade Eagle nickel/copper underground mine located in northern Michigan, U.S.A.
According to a press release from the company, the agreed purchase price is approximately US$325 million, consisting of a US $250 million purchase amount plus project expenditures from January 1, 2013 until transaction closing of approximately $75 million, payable in cash, and subject to customary adjustments.
Paul Conibear, President and CEO commented, “The acquisition of the Eagle Mine fits ideally within Lundin Mining’s asset base and is the result of the disciplined approach we have been focused on for some time to acquire high quality, advanced stage assets in low risk, mining oriented jurisdictions.
Eagle Mine represents a very unique opportunity to acquire a high-grade project which is under construction and expected to begin generating significant levels of metal production and cash flow prior to the end of next year. Northern Michigan has an outstanding iron ore, gold and base metals mining history and consequently excellent regional power, road and rail infrastructure, with extensive mining expertise within local communities to support and staff Eagle Mine.”
The Eagle Mine is located in Marquette County. Project construction is slightly more than 50% complete with initial production expected to commence in Q4 2014. Annual production over the first three full years (2015 – 2017) is expected to average approximately 23,000 tonnes of nickel and 20,000 tonnes of copper per annum, with additional by-product credits of precious metals and cobalt. Due to the high nickel grades and strong by-product credits, C1 cash costs for the first three years are expected to average approximately $2.00/lb nickel, thereby strongly positioning the asset in the lowest quartile of the nickel producer cost curve.
Key Investment Highlights
- · High grade nickel/copper deposit in a low-risk jurisdiction
- · High quality nickel and copper concentrates with low technical and processing risk
- · Project construction is just over 50% completed
- · Production expected to commence Q4 2014
- · Expected to be lowest quartile cost nickel producer
- · Short payback period and strong cash flows
- · Exploration upside with potential for increase in resources
Eagle Mine Overview
The Eagle Mine is a high grade nickel/copper deposit with Probable Ore Reserves estimated in accordance with JORC of 5.18 million tonnes at 2.93% nickel and 2.49% copper anticipated to produce on average approximately 17,000 tonnes per annum nickel and 17,000 tonnes per annum copper, with gold, cobalt, platinum and palladiumby-products over the current life of mine of approximately 8 years. In close proximity to the Eagle Mine deposit, several exploration targets have been identified. Exploration efforts will be advanced in this highly prospective area of interest to identify additional resources.
Rio Tinto discovered the Eagle deposit in 2002 and after completion of pre-feasibility (2005) and feasibility studies (2007), a decision to build was announced in July 2010. Construction of the project is now slightly more than 50% completed, with first production expected to occur in Q4 2014. Total project capex is estimated at $770 million of which approximately $355 million has already been spent as of the end of May 2013. In addition to the total acquisition price of approximately $325 million, remaining investment by Lundin Mining for the balance of 2013 and 2014 to bring Eagle Mine into production is estimated at $400 million.
The Eagle assets being acquired comprise the in-development Eagle nickel-copper underground mine, the historic Humboldt mill site and mineral, water, access and surface rights around the mine. The Eagle deposit is an ultramafic-intrusive-hosted Ni-Cu deposit, with cobalt, platinum group metals (PGMs) and gold. The mine is located 45 km north west of the city of Marquette, Michigan and served by good infrastructure in a region with a long history and local support of mining activities.
The underground mine, which is in an advanced stage of development, is served by a mine ramp, with some 3,000m of total development having been completed as of the end of May. The planned mine production rate is 2,000 tonnes per day from long-hole open stopes with cemented rock backfill. Ore will be transported from the mine to the Humboldt mill site on upgraded existing roads (approximately 105 km) by truck.
Mill facilities are under construction as a brownfields project by refurbishing the Humboldt mill buildings andinfrastructure. Processing at a rate of 2,000 tonnes per day, will comprise conventional crushing, grinding and flotation to produce separate nickel and copper concentrates. The concentrates will be transported by existing rail infrastructure from the mill site to final smelter or port destinations.Tailings will be deposited sub-aqueously in the adjacent flooded Humboldt open pit. Power is supplied from the grid already connected to the site.
Transaction Overview
The purchase price will be paid in cash and is subject to certain adjustments dependent on the exact time of closing. The purchase price will be funded from Lundin Mining’s current net cash balance of approximately $250 million and a portion of its existing $350 million revolving credit facility. The remaining balance of project capital to be spent will be funded by the Company’s existing credit facility, from ongoing cash flow and if necessary from an expanded debt facility or similar flexible funding instrument. The transaction is not conditional upon financing.
The purchase agreement includes typical closing conditions, including regulatory approvals. The transaction is expected to be completed in July 2013.