Northern Peru heading to China

Vancouver — In a deal valued at $455 million, Northern Peru Copper (NOC-T, NPUCF-O) is being bought out by China Minmetals and Jiangxi Copper (JCC-L), majors willing to pay a premium to get their hands on the junior’s Galena copper-gold-molybdenum project in Peru.

The two Chinese companies have offered $13.75 per share to acquire Northern Peru, a price that represents a 34% premium to the junior’s volume-weighted 20-day average, or a 21% premium to Northern Peru’s closing price on Dec. 5. Northern Peru’s board of directors unanimously supports the takeover bid, and all officers, directors, and certain major shareholders who together, represent 42% of the company’s outstanding shares, have entered into lockup agreements with the suitor companies.

In a statement, Northern Peru chairman Ross Beatty said the company spent 2007 seeking out a major mining company to acquire and develop the Galeno project into a large-scale mine. He said 27 companies expressed interest; 18 of those visited the property and completed due diligence.

“Minmetals and Jiangxi presented us with the best offer, and we are happy to accept,” Beatty said. “Both are large companies with extensive experience in the copper sector and are fully capable of developing Galeno into one of the world’s premier copper mining operations.”

Northern Peru’s share price jumped $2.24 or 20% on news of the takeover offer to close at an all-time high of $13.59 on a record-breaking 5.6 million shares traded. Until now, the company had a 52-week trading range of $5.37-12.60 with 31 million shares issued.

Galeno is an Andean-style porphyry deposit near the city of Cajamarca, in Peru’s Yanacocha district. The project received an updated resource estimate in late November that pegged measured and indicated resources at 803 million tonnes grading 0.48% copper, 0.11 gram gold per tonne, 2.6 grams silver and 0.014% molybdenum, at a 0.4% copper cutoff grade. The new estimate increased measured and indicated tonnage by 5% with a 3% increase in total contained copper, which stands at 8.5 billion lbs.

In the inferred category, tonnage increased by 27% to 124 million tonnes grading 0.36% copper, 0.08 gram gold, 2.4 grams silver and 0.01% molybdenum.

In January, a prefeasibility study showed good economics for an open-pit operation: initial capital costs were pegged at US$975.6 million for a project that would produce 144,000 tonnes of copper-in-concentrate annually over a 20.4-year mine life.

The prefeasibility gave Galena a net present value of US$560 million after tax using an 8% discount rate. The after-tax internal rate of return came in at 18.2%. The study showed Galena would be a low-cost producer, with each pound of copper carrying a cash cost of US51 (net of byproducts) over the life of mine.

Northern Peru also holds the Hilorico gold project, an epithermal deposit located only 1 km from Galena. Recent stepout drilling at Hilorico has been hitting some of the highest-grade mineralization to date. In mid-September, the company released results from hole 31, which was drilled as a deep stepout hole on the southern margin of the deposit and cut 122.6 metres grading 1.57 grams gold and 13.6 grams silver from 111.4 metres down-hole.

And in mid-November, Northern Peru released drill results indicating a high-grade zinc-silver zone at the southern end of the deposit. Hole 33 intersected 82.5 metres grading 1.04 grams gold and 10.9 grams silver from 227 metres depth, followed by 30 metres grading 0.5 gram gold, 119.3 grams silver, 5.44% zinc and 1.71% lead. Two other holes drilled from the same collar returned similar intersections.

Hilorico hosts an inferred oxide resource of 19.4 million tonnes grading 0.65 gram gold and 3.3 gram silver at a 0.3-gram gold cutoff. In the sulphide zone, the inferred resource sits at 21.3 million tonnes averaging 0.93 gram gold and 4.8 gram silver at a 0.5-gram gold cutoff.

Minmetals and Jiangxi are majors in the Chinese metals industry. Minmetals is one of the major subsidiaries of China Minmetals, a diversified metals and mining company based in Beijing. The state-owned corporation produces and trades copper, aluminum, tungsten, tin, antimony, lead, zinc, iron and steel-related commodities. In 2006, China Minmetals operated in 44 countries with revenues of US$18.9 billion.

Jiangxi is the largest copper producer in China, with operations in mining, milling, smelting and processing. The public company also deals in sulphur, gold, silver and other precious and specialty metals.