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Teck boosts stake in Zafranal JV partner AQM Copper

Teck Resources (TSX: TCK.B) has upped its interest in AQM Copper (TSXV: AQM), its partner at the Zafranal copper-gold project in southern Peru.


Teck Resources (TSX: TCK.B) has upped its interest in AQM Copper (TSXV: AQM), its partner at the Zafranal copper-gold project in southern Peru.

 

The miner disclosed it has made a deal to buy 14.6 million shares of AQM for $1.5 million, or 10.37¢ per share. 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 company 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 cap is only $15 million.

 

Just two weeks ago, the Zafranal partners approved a US$30-million prefeasibility study on the copper prophyry project that should be complete in 18 months.

 

AQM is the operator of the joint venture, 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, Mitsubishi Minerals bought a 40% stake in AQM’s Peruvian subsidiary, which holds its interest in Zafranal, for US$37.7 million (an investment of US$22.6 million plus a commitment for US$15 million in additional funding). The deal left AQM with a 30% beneficial ownership interest in Zafranal and more than enough cash to fully fund its share of the prefeasibility study costs.

 

The study will build on an 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, and an after-tax net present value (on a 100% basis) of US$616 million at a discount rate of 8%.

 

It projected an after-tax internal rate of return of 18.2% using metals prices of US$3 per lb. copper and US$1,274 per oz. gold.

 

The 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 an additional 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 version of an earlier study, and looked at a scaled back operation. The initial study outlined an 80,000-tonne-per-day mine with an initial capex of $1.5 billion.

 

At a 0.2% copper cutoff 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 5–15.5¢.


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