Australian-based copper and gold miner PanAust has entered into a $125-million agreement with a subsidiary of GlencoreXstrata plc to buy its 80% interest in the Frieda River Copper-Gold Project by acquiring all of the shares held by Glencore in Xstrata Frieda River Limited (XFRL).
The company will own the project in a joint venture (JV) with another Australian company Highlands Pacific, and has announced plans for a project half the plant scale envisaged by GlencoreXstrata and at a third of the cost.
Highlands Pacific’s managing director John Gooding has welcomed the PanAust partnership, saying the companies had similar views on the project development scale. “Frieda can be a great copper project for Papua New Guinea, but developing it as a mega-project as first envisaged five or six years ago by Xstrata, could face a number of challenges given the current market environment.”
The most recent feasibility study by the JV partners had considered a project with the potential to deliver an open pit mining operation annually averaging around 190,000 tonnes of copper and 280,000 ounces of gold, over a 20-year life-of-mine. However, as part of its due diligence, PanAust conducted a scoping study based on a smaller-scale 24-million-tonne-a-year conventional open pit and flotation operation, providing an average 100,000 tonnes of copper and 160,000 ounces of gold over an 18-year mine life. Development capital was estimated in the range of between $1.5-billion and $1.8-billion.
PanAust says that given the size of the existing mineral resource relative to the scoping study proposal, and the potential for exploration to define additional mineral resource, it is likely that there is scope for expanding the project. It says that a feasibility study on the project will include an option analysis on future expansion. Work on a feasibility study consistent with PanAust’s development concept will proceed until the satisfaction of conditions precedent.
PanAust has agreed to pay GlencoreXstrata an initial $75 million over two instalments, with the first $25 million payment due upon the transaction close. The second instalment will be made by the end of December 2015. In addition, on the successful completion of development at Frieda River, GlencoreXstrata will receive a 2% net smelter return royalty to a total aggregate of $50 million.
PanAust has also announced it will be taking a 7.5% shareholding in Highlands through a share placement. PanAust will also have a 90-day option period once the Frieda River acquisition is completed, to subscribe for a further 7.5% stake in Highlands.
Meanwhile, PanAust has agreed, subject to the completion of its agreement with GlencoreXstrata, to relinquish any potential clawback rights over the Star Mountain exploration leases, also in Papua New Guinea. This will result in Highlands holding full ownership of all four exploration leases north of the Ok Tedi mine, and opens the opportunity for Highlands to consider farm-out or JV opportunities with third parties.