Chinese Bid $679M For Corriente

VANCOUVER — After a year of negotiations, Corriente Resources (CTQ-T) has inked a deal to sell itself and its massive copper-gold projects in Ecuador to two Chinese companies for $679 million.

The deal will see a company jointly owned by China Railway Construction and Tongling Nonferrous Metals Group, pay $8.60 in cash for all Corriente’s fully diluted shares, which values the junior at $679 million. The price represents a 27% premium to Corriente’s average trading price for the 30-day period leading up to Christmas.

The prize is Corriente’s Ecuadorian projects. The company owns four copper and copper-gold porphyry deposits contained within the Mirador and Panantza-San Carlos projects in the country’s rugged sotheastern border region. Corriente bought the projects in 2004 from BHP Billiton, which still holds a 2% net smelter return royalty on future production, and has since spent $92 million advancing Mirador and $11 million on Panantza-San Carlos.

Corriente’s efforts in Ecuador were halted, however, from early 2008 until late 2009 when the country suspended all exploration activities while drafting a new mining law. The new mining law was enacted in January 2009; in March the company was allowed to restart basic field operations; and in November Corriente received an official notice authorizing the restart of advanced exploration activities, including drilling and earthworks.

During the suspension of exploration work, Corriente completed additional engineering and feasibility work and updated the Mirador feasibility study. The new economic study looked at a 30,000- tonne-per-day operation producing 130 million lbs. of copper annually. To develop the project is expected to cost US$399 million.

The project carries an after-tax net present value of US$265 million and carries an after-tax internal rate of return of 17.7%, based on metal prices averaging US$1.75 per lb. copper, US$550 per oz. gold, and US$7.50 per oz. silver.

“The Mirador and Panantza San Carlos copper projects will require large-scale capital investment by CRCC-Tongguan to unlock the infrastructure development, social benefits, and jobs that will flow to the people of Ecuador,” said Ken Shannon, CEO of Corriente.

The Mirador deposit is home to 437.7 million measured and indicated tonnes grading 0.61% copper, 0.2 gram gold per tonne, and 1.5 grams silver per tonne. The nearby Mirador Norte deposit hosts 171.4 million measured and indicated tonnes grading 0.51% copper and 0.089 gram gold. Inferred resources add 235 million tonnes grading 0.52% copper, 0.17 gram gold, and 1.3 grams silver to Mirador and 45.8 million tonnes grading 0.51% copper and 0.068 gram gold to Mirador Norte.

The base-case mine plan only incorporates 41% of Mirador’s measured and indicated resources and none of its inferred tonnage. The study also did not include Mirador Norte at all, even though the north deposit is only 1 km from the planned site for the processing facility.

The new owners have considerable experience developing large projects. China Railway is China’s largest railroad builder and Tongling is the nation’s second-largest copper producer.

Corriente’s board of directors says the offer is in shareholders’ best interests and recommends shareholders tender to it. The company’s directors, who collectively hold 12% of the company’s outstanding shares, have entered into lock-up agreements. The deal still requires approval from two-thirds of Corriente’s shareholders and regulatory approval, including Chinese government approvals.

It was back in January 2008 when Corriente starting seeking a partner for Mirador. By the end of the year, interested parties conducted due diligence visits and Corriente announced that discussions with some parties had progressed from the potential sale of the properties to that of the whole company.

Corriente shares gained 97¢ on the news to close at $8.52. The company has a 52-week trading range of $3.69 to $8.29 and has 75 million shares outstanding.