Bear Creek to buy out Rio Tinto at Corani

VANCOUVER — Bear Creek Mining (BCM-V, BCEKF-O) has reached a deal to purchase the 30% interest in the Corani silver-lead-zinc deposit held by its joint-venture partner, Rio Tinto (RTP-N, RIO-L).

The agreement, worth a total of US$75 million, would make Bear Creek the outright owner of the southern Peru project. Under the deal, Bear Creek will issue Rio Tinto 3.87 million shares at US$7.75 a piece (valued at US$30 million); and make payments of US$20 million by the end of 2008 and US$25 million by Dec. 31, 2009.

The payments would be due earlier if there were a change in control of the company before then.

The deal also extinguishes all of Bear Creek’s future payment obligations, royalties and Rio Tinto’s 60% back-in right under the existing option agreement.

“This transaction increases Bear Creek’s total silver resources by thirty-eight per cent and is very accretive on a per-share basis, resulting in an increase of 1.52 ounces of silver per share, exclusive of base metals credits,” said Andrew Swarthout, company CEO and president in a statement.

As Rio Tinto will hold roughly 7.5% of Bear Creek’s shares when the deal is completed, it has agreed to allow the junior some rights in arranging purchasers, should it decide to divest. The major has also agreed to vote its shares with Bear Creek management until one year from closing (earlier if there’s a change of control in Bear Creek, or if half of the Corani or Santa Ana deposits are sold).

A recently completed scoping study on Corani indicates robust economics for a proposed open-pit mining operation.

The study projected a net present value (NPV) of US$329 million for Bear Creek’s current 70% of the deposit, using a 7% discount rate, and a 40% internal rate of return (IRR). A US$12-per-oz. silver price, plus lead and zinc prices of US93 per lb. and US$1.19 per lb., respectively, were used.

Initially mining three high-grade starter pits, Corani is projected to produce 22 million oz. silver annually in its first two years of operation. Over an estimated 12.5-year mine life, it will produce an average of 15.2 million oz. silver, 123 million lbs. (55,800 tonnes) lead and 66 million lbs. (30,000 tonnes) zinc annually at a silver cash cost of US$2.49 per oz., net of base metal credits.

Costs to build the mine are esti- mated at US$428 million, while life-of- mine capital expenditures come in at US$592 million. Payback is projected in less than two years.

The company has stated that mine life will likely extend well beyond 12.5 years, depending on ongoing metallurgical test work and future silver prices.

Aside from Corani, Bear Creek is advancing its Santa Ana silver discovery, located in southern Peru, where it recently calculated an indicatedresourceof21 million tonnes grading 44 grams silver plus 42 million indicated tonnes at 45 grams silver, along with some lead and zinc values.

Bear Creek shares moved up 49 on the news to close at $8.69 apiece.