In June, North agreed to earn up to an 87.5% interest in NorthMet by taking private placements in PolyMet and funding all development costs, including a prefeasibility study. Less than a month later, Rio Tinto announced plans for a US$1.7-billion takeover of the Australian iron ore producer.
Before Rio Tinto assumed control of North in August, the Denver-based junior had already received US$2.2 million from two tranches of the private placement.
Says PolyMet President Donald Gentry: “At the time PolyMet was required to make a decision [to proceed with the prefeasibility study], Rio Tinto was unable to commit to the work plan and supporting budget previously approved by the joint-venture partners.”
No alternative plan was offered.
PolyMet pulled out of the deal by invoking a clause in the agreement that allowed it to withdraw within 30 days in the event of a change in control at North.
“I believe this move is in the best interests of PolyMet, its shareholders and the expeditious development of our project,” states Gentry, adding that the company can now either proceed with the US$3-million prefeasibility study on its own or seek another partner.
The study will include additional drilling and deposit modeling, optimization work on the metallurgical process, and plant layout and design, as well as an economic evaluation of the project.
PolyMet recently reported positive results from pilot plant tests conducted by Ontario’s Lakefield Research. The plant used a hydrometallurgical process to recover platinum, palladium, cobalt, gold, copper and nickel from an 839-kg bulk sample taken from drill cuttings at NorthMet. Metal recoveries were generally better than previous hydrometallurgical testing and confirmed the viability of the Platsol pressure oxidation process.
The NorthMet project, situated in the Duluth igneous complex, is a large-tonnage deposit with a resource exceeding 800 million tonnes of 0.43% copper and 0.11% nickel, plus 1.5 grams silver, 0.44 gram palladium, 0.12 gram platinum and 0.06 gram gold per tonne. Capital costs for the open-pit operation are expected to exceed US$500 million.
As a result of North’s involvement in PolyMet, Rio retains 3.2 million units of PolyMet. Each unit consists of one share and one share purchase warrant exercisable at $1.20 per share within two years. Based on the shares alone, Rio holds an 11.1% stake in PolyMet. The stake will increase to 20% if Rio Tinto exercises the warrants, though, according to the North agreement, if Rio Tinto decides to unload its shares in the junior, it must give PolyMet the opportunity to find buyers for the shares.
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