Bear Creek to consolidate Corani interest

Vancouver – Bear Creek Mining (BCM-V, BCEKF-O) has reached a deal to purchase the remaining 30% interest in the Corani silver-lead-zinc deposit held by joint venture partner Rio Tinto (RTP-N, RIO-L).

In consolidating ownership of its southern Peru mineral project, Bear Creek will pay Rio Tinto US$75 million through:

• Issuance of 3,871,000 shares at US$7.75 apiece (valued at US$30 million);
• Cash payment of US$20 million on the earlier of December 31, 2008 or 15 business days following a change of control of Bear Creek; and
• A further cash payment of US$25 million by December 31, 2009 or 180 days after any change of control of Bear Creek.

The deal also extinguishes all of Bear Creek’s future payment obligations, royalties and Rio Tinto’s 60% back-in right under the existing option agreement.

“This transaction increases Bear Creek’s total silver resources by 38% and is very accretive on a per share basis, resulting in an increase of 1.52 ounces of silver per share, exclusive of base-metals credits,” said Andrew Swarthout, company CEO and president in the news release.

With Rio Tinto holding roughly 7.5% of Bear Creek’s shares on a post-transaction basis, it has also agreed to allow the junior some rights in arranging purchasers should it decide to divest. Additionally, the major has agreed to vote its shares with Bear Creek management until the earlier of one year from closing, change of control in Bear Creek, or if half of the Corani or Santa Ana deposits are sold.

A recently completed scoping study on Corani indicates robust preliminary economics for a proposed open pit mining operation.

A net present value (NPV) of US$329 million, using a 7% discount rate, was tabled for Bear Creek’s current 70% of the deposit and projects an internal rate of return (IRR) of 40%. Estimates use a US$12.00 per oz. silver price plus lead and zinc prices of US$0.93 and US$1.19 per lb.

Initially planning to sequence three high-grade starter pits, mining at Corani is projected to output 22 million oz. silver annually in its first two years of operation. Over an estimated 12.5-year mine life, it will produce an average of 15.2 million oz. silver, 123 million lbs. (55,800 tonnes) lead and 66 million lbs. (30,000 tonnes) zinc annually at a silver cash cost of US$2.49 per oz. net of base metal credits.

Costing to build the mine is estimated at US$428 million while life-of-mine capital expenditures come in at US$592 million. Payback is projected in less than two years.

The company has stated that mine-life will likely extend well beyond the 12.5 years depending on ongoing metallurgical test work and future silver prices.

Besides Corani, Bear Creek is also advancing its Santa Ana silver discovery located in southern Peru where it recently tabled an indicated resource of 21 million tonnes of 44 grams silver plus a further 42 million indicated tonnes at 45 grams silver along with some lead and zinc values.

Shares of Bear Creek moved up 49 on the Corani ownership consolidation news to close at $8.69 apiece in March 7th trading.