Chilean Miner Buys Majority Stake In Explorator Chile

VANCOUVER — Explorator Resources (EXO-V, EXRAF-O) is selling a 51% stake in its Chilean subsidiary, Explorator Chile, to intermediate copper miner Sociedad Punta del Cobre (Pucobre) for a US$17-million capital infusion.

“Six months ago we wouldn’t have considered doing this deal at such a price,” says Explorator Resources president and CEO David O’Connor. “But, hey, the world has changed in the last six months.”

Explorator Chile owns Explorator Resources’ main assets: the adjacent El Espino and Venus- Marcelo properties in Chile, about a 3.5-hour drive north of Santiago. The company has pegged El Espino’s indicated resource estimate at 123 million tonnes grading 0.66% copper and 0.239 gram gold, for about 1.8 billion contained pounds copper and nearly 1 million oz. gold.

O’Connor says he shopped the project around to brokers and analysts in November but couldn’t get what he thought was a good deal. He says those he met evaluated the project based on Explorator’s share price, then trading as low as 13¢.

“We decided we didn’t want to be evaluated on the share price because it’s so unnaturally low and any financing would be based on that,” he says.

At the time, he was getting offers that essentially required giving away half the company for as little as US$4 million.

“Why would we do that?” he says. “So we went to the producers and consumers instead.”

The chairman of Explorator Resources’ board, Antonio Ortuzar, put management in contact with Pucobre, which operates several copper mines in Chile.

The two companies quickly saw a fit.

To get its controlling interest, Pucobre will contribute US$10 million to Explorator Chile by March 25 and an additional US$7 million within a year and a half of signing a definitive agreement on the sale. Further to the US$17 million, Pucobre must make up to US$1.5 million available for completion of an El Espino feasibility study.

On top of its capital commitments, Pucobre will buy about 12 million Explorator Resources shares at just under 15¢ a share for proceeds of about $1.9 million; Explorator will also get a US10¢-per-ton royalty on potential ore processed from El Espino.

Subject to the approval of Explorator Resources shareholders and regulatory authorities, Pucobre will seat three directors on Explorator Chile’s board, while Explorator Resources will seat two.

Ortuzar will keep his place at the head of the table until Dec. 31, 2010.

The deal will provide Explorator Chile with much needed cash for an impending April 4 payment of US$4 million that will secure an 80% interest in the El Espino property.

For the final 20% interest, Explorator Chile owes a US$3-million payment. O’Connor says Pucobre wants it all paid off by the beginning of April.

Compared with offers made by brokers in November, O’Connor says: “If you look at it from the cash per equity point of view, it values our share price at around 75¢ — three times what it is now and four to five times what it was then.”

Although he still laments having to sell just over half its interest for US$17 million, calling it “a difficult pill to swallow,” he believes Pucobre will nonetheless make an excellent partner.

O’Connor says Pucobre isn’t taking on El Espino merely to put it on the backburner.

“These people are hungry enough to want to develop it soon,”

he says. “If you look at the tonnage and grade of our project and you compare it with their projects it is more profitable for them to mine ours than theirs. So I think they will probably fast-track this.”

He notes El Espino, unlike Pucobre’s current open-pit and underground operations, has solid gold credits.

“The copper (at El Espino) is in these shallowly dipping mantos,” O’Connor explains. “But the gold is concentrated in more steeply dipping feeders, in other words perpendicular to these things. . .” As an example, he notes that Explorator Chile hit as much as 1 metre grading 426 grams gold per tonne in hole 25.

So long as the deal passes Pucobre’s due diligence and gains approval of Explorator Resources’ shareholders, O’Connor wants to better define the high-grade gold zone. To date, the company has focused on building up a sizable copper resource, he says.

Looking further ahead, the plan is to have the project running in 2012 with a feasibility study completed by Explorator Chile by 2011.

O’Connor hopes a feasibility will give financiers enough confidence in the project so that Explorator Resources can finance its portion of development costs with a mix of debt and equity.

Some of Explorator Chile’s ongoing metallurgical work is already complete. So far, copper in oxides has shown a 78% recovery; in sulphides, copper recovery was in the 88-90% range and gold in the 78- 93% range. Acid consumption in oxides was moderate, at 35 kg per tonne.

About 80% of El Espino’s indicated resource is in the sulphide category.

Investors appeared to support the deal and boosted Explorator Resources’ share price 5¢ to close at 18¢ on the news. The stock has traded in a 12-month range of 8¢- $1.15 and the company has about 51 million shares outstanding.