BHP Billiton to sell stake in Highland Valley

Vancouver — BHP Billiton (BHP-N) has inked a deal with privately owned Quadra Mining to sell its 33.6% stake in the Highland Valley Copper mine, in British Columbia, as well as its 100% interest in the Robinson copper-gold mine, near Ely, Nev.

Quadra will pay US$73 million cash for the Highland Valley interest and US$18 million cash for Robinson. In addition, Quadra will be required to replace the US$17.8-million reclamation bond with a US$200,000 archeological bond put in place by BHP for Robinson.

Both transactions are subject to the settlement of definitive documentation and the raising of the required funds. In the case of Highland Valley, the transaction is also subject to Teck Cominco‘s (TEK-T) not exercising its right of first refusal to buy BHP’s interest. In the event Teck does so, Quadra would be paid a fee. The deals are expected to be executed in January 2004 and close at the end of February. The Highland Valley deal would have an effective date of Jan. 3.

Quadra intends to partially fund the acquisitions and the development of Robinson through an equity offering in early 2004. As well, it will seek a debt facility for the Highland Valley interest.

Quadra is based in British Columbia and controlled equally by William Myckatyn and Paul Blythe. Myckatyn has led various copper and gold producers, including Gibraltar Mines, Princeton Mining and, most recently, Dayton Mining. Blythe held executive positions at Gibraltar and Westmin Resources and was a vice-president of Billiton Base Metals.

“The Highland Valley Copper and Robinson package is an incredible start for our new Canadian base metal vehicle,” says Myckatyn, Quadra’s chairman. “With the consolidation that has been going on in both the gold and base metals business, there is a niche in the marketplace for a well-managed mid-tier company whose principals have done it before.”

Capital costs for a contract-mining operation are estimated to be $175 million; for owner-operated mining, $270 million.

Says Myckatyn: “The cash flow from Highland Valley is expected to finance the acquisition and development of other properties. When Robinson commences operations, Quadra’s annual production is expected to be over 300 million pounds of copper and 75,000 ounces of gold.”

Highland Valley is the largest copper mine in Canada and also turns out a significant amount of molybdenum. The operation consists of two large open pits that feed a 140,000-tonne-per-day concentrator. Teck holds a 66.4% interest, and BHP’s 33.6% interest was acquired through its purchase of Rio Algom.

At January 2003, proven and probable reserves at Highland Valley were 295 million tonnes of ore averaging 0.42% copper and 0.007% molybdenum. This is sufficient to run operations until 2009.

The collective agreement with the workforce represented by the United Steelworkers of America expired in September 2003, and negotiations for a new agreement are under way. In the event of a strike or lockout, BHP will make certain loans available to Quadra.

Robinson is a fully developed, 38,000-tonne-per-day mine and mill complex, and was commissioned in 1996 at the capital cost of US$480 million. Measured and indicated resources total 219 million tonnes averaging 0.8% copper and 0.23 gram gold per tonne.

Operations were suspended in 1999 because of low copper prices and lower-than-planned production.

Quadra intends to fast-track Robinson to full production as soon as possible. Concentrate production is expected to begin after six months of prestripping.