Inmet buys into Las Cruces

Inmet Mining (IMN-T) has negotiated to buy a 70%-interest in the Las Cruces copper project 20 km northwest of Seville Spain.

The project is owned by Cobre Las Cruces, a unit of MK Resources (MKRR-O). To pay for its stake Inmet has agreed to issue 5.6 million of its common shares to MK.

The acquisition will involve a merger of MK Resources with Leucadia National (LUK-N), a company which already owns 72% of MK. The Board of Directors of MK has approved the deal and Leucadia has agreed to the merger. The deal is still subject to shareholder approval.

MK Resources will become a wholly-owned subsidiary of Leucadia and shareholders of MK will receive 0.0317 shares of Leucadia for each MK share.

Once the merger is complete MK will sell 70% of the Las Cruces project to Inmet.

Last summer, Las Cruces was estimated to contain proven mineral reserves of 13.9 million tonnes grading 6.9% copper and a probable reserve of 1.4 million tonnes grading 6.4% copper. These estimates used a cutoff grade of 1% copper and a copper price of US76 per lb.

The plan is to develop an open-pit mine and process the ore on site. The ore will undergo atmospheric leaching and solvent-extraction electro-winning to form copper cathode.

Construction is estimated to cost about US$369 million. This price tag does not include interest, reclamation costs, bonding requirements and financing costs. Following mine-construction, government-subsidies in the range of US$67.4 million should kick in.

The project has not yet received its construction permits; initial engineering work is about to begin and production is slated for 2008.

The mine is expected to produce 66,000 tonnes of copper cathode per year over its 15 year mine-life, with cash costs of about US42 per lb.

Inmet will pay its share of development expenditures beginning April 1 of this year. If this agreement falls through because of a competing bid for the project, a compensation fee of at least US$3 million will be payable to Inmet by Leucadia.