Lundin backs Filo del Sol project in Argentina by joining $100M placement

Filo Mining (TSX: FIL; NASDAQ: FIL; OTC: FLMMF) shares gained more than 9% in early trades Thursday after the Lundin Family Trusts backed a $100 million private placement to fund exploration and development at the Filo del Sol project copper-gold project in San Juan region, Argentina, and Region III in Chile.

The placement entails 4.7 million shares at $21.10 each, sending shares trading as high as $23.00 in Thursday’s morning session. The Lundin Family Trusts subscribed for up to $70 million of the shares, and the BHP (NYSE: BHP; LSE: BHP; ASX: BHP) will subscribe for up to $30 million. Considered a “related party transaction,” the arrangement is exempt from formal valuation and minority shareholder approval. Closing is subject to the approval of the Toronto Stock Exchange.

BMO Capital Markets said news of the placement came somewhat earlier and for an amount less than expected. Mining analyst Rene Cartier said in a note to clients the additional investment from BHP is a positive endorsement of the project. “Moreover, the Lundin family has also shown strong support. With the private placement in line with the last closing price, this should remove a near-term funding overhang, and with Filo well-funded to continue with its project exploration efforts,” Cartier wrote.

Haywood Securities analyst Geordie Mark says BHP’s involvement “shapes a new holistic picture” of Filo del Sol. “We believe the growth and grade potential of the system holds ample value to warrant M&A interest from larger scale operators,” he said in a note.

Filo has outlined an 18 sq. km alteration zone at the project with a near-surface high-grade copper, gold, and silver deposit. Oxide resources in the indicated category stand at 362.2 million tonnes grading 0.34% copper and 0.33 grams gold per tonne, plus 132.7 million tonnes at 0.25% copper and 0.30 grams gold inferred. Using a cut-off of 0.30% copper, the sulphide resources are 70.4 million tonnes at 0.31% copper and 0.35 grams gold per tonne in the indicated category, plus 78.9 million tonnes at 0.31% copper and 0.33 grams gold in the inferred portion.

A prefeasibility study done earlier this year for Filo del Sol gave the project an after-tax net present value (8% discount) of US$1.31 billion and an internal rate of return of 20%. The figures were calculated using metal prices of US$3.65 per lb. copper, US$1,700 per oz. gold, and US$21 per oz. silver. Average annual production would be 145.5 million lb. of copper, 168,000 oz. of gold and 9.3 million oz. of silver.

A pre-production capital cost of US$1.8 billion, excluding costs before a construction decision, will create a project with a mine life of 13 years (including pre-stripping). The investment would be paid back in 3.4 years.