Newcrest options Cornerstone’s Miocene

Over the last 15 years, Australian gold major Newcrest Mining (ASX: NCM) has found gold deposits in Australia, Papua New Guinea and Indonesia, and continues to explore and evaluate prospects in those countries, as well as in many others, including Fiji, North America, Mexico, Côte d’Ivoire, Chile, Argentina and Ecuador.

It recently signed an option agreement in Chile to earn up to a 75% interest in Cornerstone Capital Resources’ (TSXV: CGP) Miocene properties. Miocene is in the Atacama and Antofagasta regions of Chile, where Cornerstone is targeting epithermal gold-silver and porphyry gold-copper deposits.

Cornerstone says epithermal mineralization has been found on neighbouring properties along strike to the west of its Miocene claims. The company has undertaken geochemistry work (including rock and soil samples), ground geophysics, prospecting and geological mapping to prepare Miocene for its first drill program. Cornerstone says altered and geochemically anomalous areas up to 9 by 3 km on the property have never been trenched or drilled.

Cornerstone has a portfolio of projects in Chile and Ecuador, including the Cascabel gold-enriched copper porphyry project in northwestern Ecuador, where it has a 23% direct and indirect stake with joint-venture partner SolGold (TSX: SOLG).

Newcrest already has a strategic stake in an Ecuador-focused company. In February it invested $250 million at $5.50 per share for a 27.1% interest in Lundin Gold (TSX: LUG), which is developing the Fruta del Norte gold mine.

The deal with Cornerstone could signal more to come in Ecuador.

“Newcrest is also actively exploring in Ecuador, where Cornerstone has a first-mover advantage as a prospect generator” since 2005, and has “several drill-ready properties available for option,” Newcrest CEO Brooke Macdonald said in a news release.

In the meantime, Newcrest can earn ownership in Cornerstone’s Miocene project in Chile over four stages. In the initial 18-month option period, Newcrest will make an upfront payment of $100,000 and spend at least $1.1 million.

Over four years in the first stage, Newcrest must pay $500,000 and spend another $8 million, with a minimum of $500,000 each year to keep the option and earn a 51% stake in the project.

In stage two, over two years, Newcrest will pay Cornerstone $650,000 and complete a preliminary economic assessment on any target area on the property. To boost its stake to 65%, Newcrest can extend the second stage of the agreement to a third year by paying another $250,000.

In the final third stage, over a two-year period, Newcrest would need to spend $100 million or complete a bankable feasibility study, whichever happens first, to raise its stake to 75%. Newcrest would also be permitted to extend stage three by up to an extra two years by paying $500,000 for each one-year extension.

If Newcrest earns a 75% stake, Cornerstone would have an option to convert 5% of its 25% equity in the project into a 1% net smelter return royalty (NSR). Newcrest would then have the right to buy down the royalty to 0.5% NSR at fair market value after finishing a bankable feasibility study.

Andrew Kaip of BMO Capital Markets has a target price on the stock of A$23 per share. At press time it was trading at A$21.30 per share.