BASE METALS

Sumitomo, Quadra FNX form $2.9 bn Sierra Gorda copper-moly project JV

A feasibility study has determined the nearly $3 billion Sierra Gorda copper-moly project in Chile could supply up to 9% of Japan's copper concentrate imports. Japan's Sumitomo Mining taking major stake.

RENO, NV - 

Quadra FNX Mining and Sumitomo Mining have signed an investment agreement for the development of the Sierra Gorda project, a large copper-molybdenum mining project in Chile.

Sumitomo Metal Mining and Sumitomo Corporation will incorporate a 70:30 joint venture company in Chile which will subscribe for 45% of the shares of Minera Quadra Chile, a 100% owned subsidiary of Quadra FNX, which owns the project assets.

In return for Sumitomo's 45% interest in Minera Quadra Chile, it will contribute US$724 million to the development of the US$2.9 billion Sierra Gorda Project. Sumitomo has also agreed to arrange a minimum $1 billion project financing to Quadra FNX or provide an $800 million loan to Quadra FNX.

Sumitomo said part of the project financing will be provided by the Japan Bank for International Cooperation. The remainder of the development costs will be funded pro-rata by Sumitomo and Quadra FNX, which will provide$650 million through cash on hand and debt.

Quadra also announced the results of a positive feasibility study "which confirms a robust, large-scale, lower cost mine in a mining friendly jurisdiction."

The study estimated production from current sulfide reserves will average 483 million pounds of copper, 25 million pounds of moly, and 64,000 ounces of gold annually over a 20-year mine life. Moly production is anticipated to be 54 million pounds per year during the first three years of operation.

Initial throughput rate will be 110,000 tpd with an expansion to 190,000 tpd after three years. The expansion to 190,000 tpd is expected to cost $818 million over three years.

Sumitomo has a right to off take 50% of produced copper concentrate, which is equivalent to 9% of Japan's current total imports of copper concentrates.

"Sumitomo considers the closeness of the project to good infrastructure and its low altitude to be a significant advantage," the company said.

"The combination of Sumitomo's creditworthiness and financial strength, and Quadra FNX's excellent experience in mining construction and operations should lead to smooth completion and operation of the project," Sumitomo said. "By participating in this project, Sumitomo will contribute to securing copper resources for Japan in an escalating competition for copper resources."

In its 2009 mid-term business plan, Sumitomo Metal Mining (SMM) set a long term goal of producing 300,000 tonnes of copper from its share in joint venture mines "and when this project reaches target capacity, SMM will be making great progress toward achieving its long-term goal," the Japanese miner said.

"Sumitomo Corporate will actively increase mining assets of copper metal which is one of the important strategic commodities of mineral resources, energy, chemicals and electronics business unit of the company, through the acquisition of the promising interests, and will take steady progress to achieve the new medium term management plan, which has been just launched since April 1, 2011," the company said.

Paul Blythe, the CEO of Quadra FNX, said, "The JV with Sumitomo and the development of Sierra Gorda will provide Quadra FNX with a large, long life, low cost copper project which will allow us to move past our strategic objective of 500 million pounds of annual copper production."

"We are proud to be able to announce a partnership with a world class organization like Sumitomo, which will bring a wealth of experience, knowledge, and financial strength to the development and operation of the Sierra Gorda project," Blythe added. "We now have the team and a financing structure in place which will allow us to bring the project into production. In addition, the project debt structure, non-recourse to Quadra FNX, leaves us with the flexibility to pursue other growth opportunities including the recently announced Victoria project in Sudbury."