Teck boosts stake in partner AQM Copper

After loading up on shares of AQM Copper (TSXV: AQM; US-OTC: APQUF) in July, Teck Resources (TSX: TCK.B; NYSE: TCK) now owns just over 30% of the junior — its partner at the Zafranal copper–gold project in Peru.

Teck made a deal to buy 14.6 million shares of AQM for $1.5 million, or 10.37¢ per share, in July. After the transaction, Teck will hold 42.3 million AQM shares, or 30.35% of the company. Teck said the purchase was made for investment purposes.

The miner already held 19.9% of AQM shares after subscribing for 22.5 million shares in a private placement priced at 11¢ last November.

On news of Teck’s latest investment, shares in AQM rose by 2¢, or 22% to 11¢, on trading volume of nearly 400,000. The junior’s market capitalization is only $15 million.

Just two weeks earlier, the partners approved a US$30-million prefeasibility study on Zafranal that should take 18 months to complete.

AQM is the operator at Zafranal, but Teck has the right to take over once a production decision is made. Both parties held 50% of the project until last year.

Last August, AQM sold a 40% interest in its Peruvian subsidiary, Minera AQM Copper Peru, which holds its interest in Zafranal. Mitsubishi Minerals paid US$37.7 million for the stake, which translates to a 20% ownership in Zafranal. The deal left AQM with 30% of Zafranal and more than enough cash to fund its share of the prefeasibility study costs. (The junior received a US$22.6-million investment right away, plus a commitment for US$15 million more funding).

The prefeasibility study will build on a preliminary economic assessment (PEA) completed in September 2013. The PEA outlined a 44,000-tonne-per-day, open-pit operation with initial capital costs of $1.1 billion.

The project looks economic, with the PEA projecting an after-tax net present value of US$616 million at an 8% discount rate, and an 18.2% internal rate of return using metal prices of US$3 per lb. copper and US$1,274 per oz. gold.

Zafranal’s mine life was pegged at 25 years, including two years of prestripping and two years of stockpiled feed processing. The operation would include a conventional mill and concentrator that would produce 54,556 tonnes of copper in concentrate per year, with another heap-leach and electrowinning facility expected to produce 5,949 tonnes of copper cathode a year from oxide and secondary sulphide copper material.

The September PEA was an updated and scaled-back version of an earlier study that looked at an 80,000-tonne-per-day mine with an initial capex of $1.5 billion.

At a 0.2% copper cut-off grade, the Zafranal Main and Victoria zones at the project hold 621 million measured and indicated tonnes grading 0.37% copper and 0.08 gram gold per tonne.

Zafranal was discovered by Teck in 2003, with AQM winning a bidding process to earn in on the project in 2009. The project is located 90 km northwest of the city of Arequipa.

AQM has 139.2 million shares outstanding and has traded in a 52-week range of 5¢ to 15.5¢.