Partners surrender Duck Pond

Partners Queenston Mining (QMI-T) and Thundermin Resources (THR-T) have inked separate deals to sell their respective half-interests in the Duck Pond copper-zinc project in central Newfoundland to Aur Resources (AUR-T).

For Thundermin’s 50% interest, Aur will pay $2.1 million in cash and tender its 11.2 million Thundermin shares back to the company. Aur has also agreed to acquire Queenston’s half of the project for $3 million.

Conditions of the Queenston deal include: Noranda’s consent; Queenston extending its $1.5 million loan to Thundermin to the deal’s closing date (to which Queenston has agreed); Thundermin shareholder approval; and Queenston receiving a favourable fairness opinion of the transaction. Thundermin also retains the right, prior to shareholder approval, to receive and evaluate unsolicited third-party proposals for its half-interest.

The Thundermin agreement is also subject to shareholder approval and Ontario Securities Commission approval for the tender Aur’s Thundermin shares. Thundermin also has the right to entertain other unsolicited offers for its Duck Pond stake and can accept an offer greater than $3.15 million. Thundermin also has the first right of refusal on Queenston’s half of the property.

The partners’ interests in Duck Pond are held under an option agreement with Noranda (NRD-T). Aur will assume their right to acquire a 100% interest in the Duck Pond property from Noranda by making a production decision and paying Noranda $500,000 in cash by June 30, 2003 and reaching full production by June 30, 2006.

Aur can extend the deadline for a production decision and attaining full production by making cash payments to Noranda. Once full production is achieved, Aur must pay Noranda another $3 million. Noranda will also retain a 2% net smelter return royalty on any production from the property.

In a prepared statement, Thundermin said that the proposed sale of its stake “is the only available solution to the immediate financial difficulties of Thundermin.” The company notes that without the loan extension granted under the Queenston deal, it would risk bankruptcy, as the company doesn’t currently have enough money to cover the loan, which would become immediately payable.

The two deals are expected to wrap up by April 1, 2002.

In May, a bankable feasibility study at Duck Pond gave the thumbs up to a 1,500-tonne-per-day mine and mill, with initial production to come from the Boundary deposit, a near-surface massive sulphide body 4 km northeast of the main Duck Pond mineral deposits. Boundary hosts 533,000 tonnes of proven and probable reserves running 3.4% copper, 2.7% zinc, 0.4% lead, 22 grams silver and 0.3 gram gold per tonne. Production would begin in year two at Duck Pond itself. The feasibility study considered only the two shallower orebodies, Upper Duck and Sleeper; a third, Lower Duck, is currently only in the resource category. The feasibility study used a reserve figure of 4.7 million tonnes grading 3.3% copper, 6.2% zinc, 1% lead, 63 grams silver and 0.9 gram gold per tonne at Duck Pond. An additional resource of 269,000 tonnes runs 2.4% copper, 6.3% zinc, 1% lead, 57 grams silver and 0.8 gram gold. Outside of reserves in the three Duck Pond orebodies are inferred resources of 1.1 million tonnes of 2.6% copper, 5.6% zinc, 1.2% lead, 58 grams silver and 0.6 gram gold.

Over a ten year life, the operation is projected to produce about 14,500 tonnes copper and 27,200 tonnes zinc.

The study puts capital costs at C$79.6 million, including road and hydro work and an 11% contingency figure. Cash operating costs are expected to average C$42 per tonne of ore, translating into a cash cost of US$32 per lb. of copper. Based on 100% equity financing and a discount rate of 7.5%, the project has an internal rate of return of 18%, a net present value of C$44.5 million, and net cash flow of C$118.3 million. A further $11.3 million in capital expenditures will be needed once the mine is in production.