Kennecott drops anchor at Jackson Inlet (April 26, 2004)

An agreement with Twin Mining () paves the way for Kennecott Canada Exploration to acquire up to a 75% interest in the Jackson Inlet diamond project on Baffin Island’s Brodeur Peninsula.

Kennecott can first earn a 56% stake by spending at least $10 million on exploration over four years. The company must also complete a representative bulk sample yielding at least 200 carats’ worth of diamonds exceeding 1 mm in all three dimensions during that time. Kennecott’s stake will fall to a minimum of 46% if it fails to deliver the bulk sample on time; in any case the initial earn-in must be completed in six years.

Kennecott can then boost its stake to 71% by completing a feasibility study within seven years. That stake slips to 67% if the study is completed in year eight of the agreement, and to 62% if is completed later than that.

Once it completes the study, Kennecott can add another 4% by bringing the mine into production by year 10 of the agreement. If a mine is not developed within two years of the study’s completion, Twin can submit its own development plan to Kennecott, which will have 60 days in which to accept, or relinquish management to Twin and dilute to a maximum 49% interest.

The pair will then form a joint venture, with the majority-interest holder acting as manager. Once they decide to build a mine, each partner will have a one-time right to market its share of diamond production; otherwise the project manager will assume that responsibility.

If Kennecott solely funds mine construction, it will be marketer for five years, or until Twin has repaid its share of development and construction costs, whichever is later.

Also as part of the deal, Kennecott will subscribe for $250,000 worth of Twin shares on signing, and will take up similar placements (at a price equivalent to 130% of the shares’ prevailing market price) on an annual basis until it has earned its stake in the project.

The agreement covers the 1,095-sq.-km northern portion of Twin’s Brodeur land position, which has already yielded more than 50 carats of diamonds.

The partners are planning this year’s exploration program, and Twin is also readying for exploration on its remaining 3.990 sq. km on the Brodeur Peninsula.

Kennecott is a subsidiary of Rio Tinto (RTP-N).