Falco deal with Glencore paves way for Horne 5 development

Falco Resources (TSXV: FPC) shares gained as much as 41% today on news of an agreement with Glencore (LSE: GLEN) that will allow it to use part of Glencore’s lands in its development of its wholly owned Horne 5 copper-zinc mine in Quebec.

The deal clinches a preliminary agreement signed between the two companies in 2021. In order for Falco to access its Horne 5 deposit, it needs to rehabilitate a shaft owned by Glencore. Glencore owns the mining concession at the property, while Falco holds mineral rights below 200 metres and surface rights around the shaft. 

Falco shares closed the day up 32.4% at 22.5¢, giving it a $60-million market cap.

In a note to clients, BMO Capital Markets mining analyst Alex Pearce called the operating licence and indemnity agreement (OLIA) with Glencore a key milestone for Falco.

“With an agreement in place, Falco will be able to meaningfully advance the development of Horne 5 located in Rouyn-Noranda, Que.,” he wrote. “In our view, this is a positive development and a key achievement for the company.”

The terms of the agreement outline cooperation and communication between the parties to facilitate the development of Horne 5 while mitigating the impact to Glencore’s nearby smelter.

The agreement includes the creation of a technical committee consisting of two nominees from Glencore and two from Falco. A similar strategic committee will also be created. Glencore will appoint one nominee to Falco’s board, and retain priority over the operations of Horne 5. Falco must make financial assurances to Glencore — $40 million before dewatering and $80 million once mining starts —  to cover risks and losses to the smelter. Glencore retains the right to require remediation, suspension, or other risk mitigation to protect the Horne smelter.

The finalized agreement combined with life-of-mine copper-zinc concentrate offtake agreements with Glencore allows Falco to advance its Horne 5 project, said Falco president and CEO Luc Lessard. The company is moving forward with permitting and financing.

According to a 2021 feasibility study, the US$844.2-million, 15-year mine would produce 220,300 oz. of gold annually. After taxes, the project has a net present value with a 5% discount of US$1.3 billion and an internal rate of return of 27.3%.

Horne 5 is to be developed below the historic Horne mine, which produced 11.6 million oz. of gold and 2.5 billion lb. of copper between 1927 and 1976. The environmental impact assessment is currently under review.

Horne 5 has proven and probable reserves of 80.9 million tonnes grading 0.17% copper, 0.77% zinc, 1.44 grams gold, and 14.14 grams silver per tonne.