Aur aims to buy stake in Zaldivar copper mine

Aur Resources (AUR-T) has reached a deal with Outokumpu Base Metals to acquire the Finnish major’s half-interest in the Zaldivar open-pit copper mine in Chile.

For US$265 million in cash and the assumption of US$100 million in debt, Aur will acquire a 50% interest in Compania Minera Zaldivar (CMZ), a Chilean subsidiary that owns the Zaldivar mine and related water rights. Placer Dome (PDG-T) owns the remainder of CMZ and has a right of first refusal on Outokumpu’s half-interest, which is not expected to be exercised.

“This will certainly change Aur,” says President James Gill. “It will move us up into a completely different level in the spectrum of base metal mining companies. It’s something we’ve set as a goal for quite a while — it just took time to find the right deal.”

For its part, Outokumpu Base Metals’ selling of Zaldivar is another step towards its stated goal of becoming more focused on refining and less active in mining and metallurgy.

Aur must pay Outokumpu US$240 million on the closing date, which is expected to be sometime in February, and pay US$25 million three years later. Aur will also assume US$100 million in subordinated debt owed to Placer Dome, with current terms consisting of semi-annual instalments totalling US$40 million per year at an interest rate 1.5% above the London Inter-Bank Offer Rate.

Aur says it envisions financing the acquisition with a combination of project debt, equity and US$25 million in cash, which will leave the company with a cash position of about US$30 million.

“I don’t think we’ll have much difficulty in arranging financing,” says Gill, who notes that Aur has been in discussions with several banks interested in backing the acquisition. He adds that Aur would like to keep enough cash on hand to be able to participate further in advanced-stage exploration acquisitions.

As part of the deal, Outokumpu Base Metals has agreed to ask its parent company, Outokumpu, to extend financing support (should it be required) by subscribing for up to 10 million Aur shares within a year of closing and for up to US$25 million worth of Aur shares three to four years after closing.

Situated 175 km southeast of Antofagasta within a 1,240-ha claim area, the Zaldivar deposit is part of a large Tertiary porphyry-copper system in the West Fissure structure. The deposit is centred on a porphyritic granodiorite that intrudes andesites and rhyolites, with associated breccias and a large hydrothermal alteration zone. It occurs as enrichment blankets of both oxide and secondary sulphide copper mineralization.

The Zaldivar mine produces cathode copper using heap-leach and solvent-extraction electrowinning methods. Commercial production began in November 1995, following expenditures of $574 million on construction. Zaldivar reached full production in December 1997 and is expected to produce about 128,000 tonnes copper in 1998 at a cash cost of US50 cents per lb.

According to Placer Dome, Zaldivar’s reserves on Dec. 31, 1997, were 267 million tonnes grading 0.94% copper, with another 312 million tonnes at 0.41% copper existing in the resource category. Aur’s separate evaluation determined that the reserves on that date were 290 million tonnes of 0.92% copper.

Gill says there is substantial potential to increase reserves both by upgrading material from the resource category and by further exploring the primary copper mineralization below the supergene and oxide material.

Aur anticipates annual production of 250-300 million lbs. copper during the next eight years and total production of about 4 billion lbs. over a mine life of 15-19 years. Operating cash costs at the mine site are expected to be US50 cents or less per lb.

The Zaldivar acquisition will swell Aur’s copper reserves to 2.5 billion lbs. from the current 480 million lbs., while annual copper production is expected to rise to beyond 200 million lbs. from the current 66 million lbs.

Aur currently operates two mines: the 70%-owned open-pit Andacollo copper mine in Chile, co-owned by Compania Minera del Pacifico; and the underground Louvicourt copper-zinc-silver-gold mine in Quebec’s Abitibi region, co-owned by Teck (TEK-T) and Noranda subsidiary Novicourt (NOV-T).

“Our revenue now is more than 80% copper, and the Zaldivar acquisition certainly isn’t going to reduce that,” says Gill. “We’re becoming more focused as a copper play, but that doesn’t preclude the possibility of acquiring a good gold asset, though they’re getting tougher to find at reasonable prices.”