Lundin Mining Corporation (TSX: LUN) (Nasdaq Stockholm: LUMI) is pleased to announce it has entered into a definitive purchase agreement with Yamana Gold Inc. to purchase its 100% ownership stake in Mineração Maracá Indústria e Comércio S/A, which owns the Chapada copper-gold mine located in Brazil for cash consideration of US$800 million, subject to customary adjustments. In addition, Yamana will retain a 2.0% net smelter return (NSR) royalty on future gold production from the Suruca gold deposit and receive contingent consideration of up to US$125 million over five years if certain gold price thresholds are met and contingent consideration of US$100 million on potential construction of a pyrite roaster.
Marie Inkster, President and CEO commented: “The acquisition of Chapada complements Lundin Mining’s existing portfolio of high-quality mines and highlights our focus on disciplined capital allocation to create long-term shareholder value. Chapada is a well-run, established operation with an experienced local workforce. Leveraging our technical expertise, base metals focus and financial strength, we believe further opportunities exist to create meaningful stakeholder value. The addition of Chapada further solidifies Lundin Mining’s position as a leading intermediate base metals producer with high-quality low-cost copper exposure.”
Located in Brazil’s Goiás State, Chapada is expected to produce approximately 54.5 kt of copper and 100 kozs of gold, or approximately 75 kt of copper equivalent2, in 2019 at co-product cash costs of $1.60/lb to $1.80/lb copper and $430/oz gold equivalent based on latest Yamana guidance. In 2018, the operation produced approximately 58.6 kt of copper and 121 koz of gold, or approximately 82 kt of copper equivalent3, at co-product cash costs of $1.74/lb and $388/oz gold equivalent, respectively.
Since production commenced in 2007 to the end of 2018, the operation has processed 225 Mt of ore grading 0.38% copper and 0.33 g/t gold, producing approximately 743.5 kt of copper and 1.6 Moz of gold in concentrate. Potential process plant expansions are currently being studied and based on work completed to date by Yamana, a phased approach shows potential to sustain annual production in the range of 68.0 kt to 72.5 kt of copper and 100 koz to 110 koz of gold until at least 2034, as disclosed in Yamana’s fourth quarter and full year 2018 results news release dated February 14, 2019.
The Chapada orebodies are part of a large copper-gold mineralized system located in gently undulating terrain at low elevation, approximately 270 km northwest of the national capital of Brasilia. The operation is connected to the national grid via a private powerline with excess capacity for expansion.
Several initiatives are underway to further improve the performance of the Chapada processing plant following optimization projects completed in 2016 and 2017 which increased copper and gold recoveries, according to Yamana’s fourth quarter and full year 2018 results news release dated February 14, 2019. The next phase of this optimization, involving expansion of the scavenger flotation circuit, is expected to increase copper and gold recoveries by a further 1.5% to 2.0% with commissioning expected in the second quarter of 2019.
In addition, Yamana has been assessing plant expansion opportunities to increase the processing rate to a range from 28 Mtpa to 32 Mtpa and the relocation of some plant infrastructure to allow the push-back of the pit wall for the development of the Sucupira deposit. Lundin Mining intends to further evaluate these and other value creating scenarios for expansion by leveraging our technical expertise, financial strength and a copper-focused exploration potential of the mineral properties.
Mineral Reserve and Resource Estimates
The audited Mineral Reserve statement for Chapada estimated by Yamana is presented in the table below and is extracted from Yamana’s full detailed Mineral Reserves and Mineral Resources data PDF available on Yamana’s website.
The audited Mineral Resource statement for Chapada estimated by Yamana is presented in the table below and is extracted from Yamana’s full detailed Mineral Reserves and Mineral Resources data PDF available on Yamana’s website. Mineral Resources are presented exclusive of Mineral Reserves.
The purchase price will be paid in cash on closing and will consist of US$800 million, subject to customary adjustments. The purchase price is expected to be funded from Lundin Mining’s current cash balance and a portion of its US$550 million revolving credit facility.
Yamana will also receive contingent consideration if certain gold price thresholds are met and development of a pyrite roaster is completed, as outlined below:
Up to US$125 million in aggregate over five years of contingent annual gold price payments based on the following structure:
A US$100 million contingent payment based on the development of a pyrite roaster which Lundin Mining will continue to evaluate.
In addition, upon closing Yamana will retain a 2.0% NSR royalty on any future gold production from the Suruca gold deposit.
Completion of the Acquisition is expected to occur early in the third quarter of 2019 and is subject to typical closing conditions, including third-party and requisite regulatory approvals. The Acquisition does not require shareholder approval of either party.
Existing Metals Sales Agreements
Yamana and certain of its subsidiaries related to Chapada had previously entered into metals purchase agreements which an affiliate of Lundin Mining will assume upon closing.
Sandstorm Gold Ltd. and Yamana entered a multi-asset stream transaction in October 2015. Sandstorm is entitled to purchase 4.2% of the payable copper produced from Chapada up to a maximum of 3.9 million pounds (Mlbs) annually at 30% of the market price. The percentage of payable copper is subject to two reduction thresholds. Once an aggregate of 39 Mlbs has been delivered the percentage of payable copper reduces to 3.0%. Upon delivery of 50 Mlbs of copper the percentage of payable copper reduces to 1.5% for the remaining life of mine.
Altius Minerals Corporation closed a copper purchase streaming interest in Chapada with Yamana in May 2016. Altius is entitled to purchase 3.7% of the payable copper produced from Chapada at 30% of the market price. The percentage of payable copper is subject to two reduction thresholds. In the event of a specified expansion at Chapada, which is deemed effective at such time as throughput increases to an annualized run rate of more than 26 million tonnes for a period of 150 days with a corresponding increase in copper production from a base rate for copper production of not less than 33%, the percentage of payable copper reduces to 2.65%. Also, upon delivery of 75 Mlbs of copper in aggregate the percentage of payable copper reduces to 1.5% for remaining life of mine.
Advisors and Counsel
TD Securities Inc. delivered an opinion to Lundin Mining’s Board of Directors as to the fairness, from a financial point of view, of the consideration to be paid by Lundin Mining in the transaction. Lundin Mining retained Stikeman Elliott LLP as Canadian legal advisors and Veirano Advogados as Brazilian legal advisors in connection with the transaction.
The qualified person for the scientific and technical information contained herein is Stephen Gatley, Vice President Technical Services, Lundin Mining. Mr. Gatley, who is a “qualified person” as defined under NI 43-101, has reviewed and approved the technical information in this news release and reviewed the Chapada Technical Report on behalf of the Company. To the best of the Company’s knowledge, information and belief, there is no new material scientific and technical information that would make the Chapada Technical Report inaccurate or misleading.
Further details with respect to Chapada are available in the Chapada Technical Report prepared for Yamana and filed under Yamana’s SEDAR profile at www.sedar.com.
About Lundin Mining
Lundin Mining is a diversified Canadian base metals mining company with operations in Chile, the United States of America, Portugal and Sweden, primarily producing copper, nickel and zinc. In addition, Lundin Mining holds an indirect 24% equity stake in the Freeport Cobalt Oy business, which includes a cobalt refinery located in Kokkola, Finland.
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