Vale Signs Option On Intrepid Project

Intrepid Mines (IAU-T, IAU-A) has agreed to option 60% of its Tujuh Bukit sulphide copper-gold project in East Java, Indonesia, to Vale (VALE-N) for a total of US$40 million.

The deal will leave Intrepid and its Indonesian partner with a 100% interest in the Tujuh Bukit gold-silver oxide project, which has an inferred resource totalling 2.57 million gold-equivalent oz.

Vale will be able to earn an interest in the sulphide copper-gold porphyry and high-sulphidation ore-body that lies beneath the oxide deposit.

The oxide deposit resource is based on Zones C and A, with the former hosting 39.3 million tonnes grading 0.55 gram gold per tonne and 26 grams silver (at a cutoff of 0.5 gram gold-equivalent per tonne) for 1.1 million gold-equivalent oz., and the latter 43.6 million tonnes at 0.62 gram gold and 28 grams silver for 1.47 million gold-equivalent oz.

Intrepid says the oxide project is ideal for the company because it won’t need a major to help it fund development. The sulphide deposit, on the other hand, doesn’t yet have a resource estimate and will need a lot more time and money before production will be considered. And Vale’s cash payments under the option agreement will help the company pursue its goals.

Under the non-binding deal, Vale will pay Intrepid US$6 million — US$2 million within five days of a signature on the agreement and US$4 million in January 2010. The companies expect to have a final agreement in place by the end of September.

If Vale decides to acquire the 60% interest, it will have to pay Intrepid US$24 million. Conditions include the reclassification of protected forest areas around the project so that open-pit mining can be permitted.

Vale must also spend US$10 million on the sulphide project over the three-year option period.

Intrepid would continue to manage the project during those years, but would operate under the direction of a technical team made up of people from both Intrepid and Vale.

Vale would also be responsible for funding a prefeasibility study and a bankable feasibility study on the sulphide deposit.

Copper and gold mineralization have been intersected in the sulphide zone but the company has not done enough drilling to define a resource yet.

Intrepid owns the Paulsens gold mine in Western Australia — a 250,000-tonne-per-year operation that’s been in operation since May 2005. Paulsens ore averages 10.7 grams gold per tonne and the mine has produced an average of 80,000 oz. gold per year.

Intrepid shares were up 18% or 4.5¢ to 30¢ apiece on the news on a trading volume of 80,400 shares. The stock has traded in a 12-month range of 5-36¢.