Aur options Tiomin’s Cerro Colorado (January 11, 1999)

In return for providing Tiomin Resources (TIO-T) with a US$2-million loan, Aur Resources (AUR-T) has acquired an option to buy Tiomin’s huge Cerro Colorado porphyry copper-gold-molybdenite deposit in western Panama.Under the agreement, Aur is being granted a 26-month option to buy Tiomin’s Panamanian subsidiary, PanaCobre, which holds the rights to the Cerro Colorado property. Aur will pay Tiomin US$4 million upon exercise of the option and another US$10 million within 90 days of the beginning of commercial production.The US$2-million loan to Tiomin will carry a 2-year term and bear interest at 6% annually. If Tiomin repays the loan before the maturity date, Aur’s purchase option will expire within 60 days. Should the option be exercised in this case, the initial US$4-million payment will be reduced to US$3 million. Tiomin can also satisfy its indebtedness to Aur by transferring PanaCobre shares to Aur.The transaction has yet to be approved by the Panamanian government and regulators.PanaCobre holds its interest in the Cerro Colorado property under an agreement with the Panamanian government-agency Codemin, the terms of which were revised in May 1998. In order to maintain its interest in the property, PanaCobre must initiate the approval process for a mine-construction permit by March 15, 2003, or as soon as copper prices exceed US$1.18 per lb. on the London Metal Exchange for 90 consecutive days.PanaCobre must pay US$4 million to Codemin once the project is permitted, and make further payments of US$3.5 million two and four years after mine construction begins. Another US$25 million is due to Codemin once the sulphide portion of the deposit enters commercial production or, if mining is to be achieved by heap leaching, 15 years after the start of mine construction.Upon commercial production, PanaCobre is entitled to 100% of the net profits until its invested capital (plus interest) has been repaid. After that, PanaCobre will receive 71% of the net profits — a figure that will be reduced annually by 1% down to a minimum of 51%.Primary copper-sulphide resources at Cerro Colorado are pegged at 1.75 billion tonnes grading 0.64% copper (or 25 billion lbs. contained copper) using a 0.4% cutoff grade. This includes 877 million tonnes of 0.78% copper (15 billion lbs.) using a 0.6% cutoff.A feasibility study of Cerro Colorado, completed last May, envisaged the building of a US$200-million heap-leach operation that would be gradually replaced by a high-capacity, conventional milling operation.Aur may carry out work programs at Cerro Colorado during the option period. Also, the company says it will explore for a higher-grade (more than 1% copper) resource amenable to open-pit or underground block-cave mining.For its part, Tiomin will use the loan to complete a bankable feasibility study on its stalled Kwale titanium mineral-sands project in Kenya. The study is due for completion by September.