Sumitomo Buys Teck’s Pogo Stake

Debt-laden Teck (TCK. B-T, TCK-N) has struck a deal to sell its 40% interest in the Pogo gold mine in Alaska to its majority partner Sumitomo Metal Mining for about US$245 million in cash.

The Japanese giant already owns an indirect 51% interest in the two-year-old mine, while its affiliate Sumitomo Corp. holds the remaining 9%. Tokyo-based Sumitomo Metal and Mining is Japan’s largest gold producer, second-largest nickel producer and second- biggest copper smelter.

Teck notes that its deal with Sumitomo was effectively triggered by a third-party offer for the 40% stake under similar terms.

Of note, operatorship will pass from Teck to Sumitomo with this transaction, which is expected to close before the end of the quarter. It will be the first time Sumitomo Metal Mining has operated a mine outside Japan, and the company sees this as perhaps the first of more overseas operatorships.

Located 145 km southeast of Fairbanks, the Pogo operation comprises a 200-person camp, a 2,500-tonne-per-day processing facility, water-treatment plant and paste-backfill plant/dry-stack tailings facility.

Mining is carried out by cut-and- fill and drift-and-fill methods. The mill is conventional and recovery is by gravity and carbon-in- pulp methods, with dor bullion poured onsite.

Commercial production started in April 2007, with production totalling 260,000 oz. gold in 2007 and 347,000 oz. gold in 2008. Teck notes that site operating costs increased by 31% in 2008, partly due to higher energy and mine consumable costs, as well as increased mill throughput.

Teck’s share of operating profit at the mine, before depreciation and amortization, was $16 million in 2007 and $55 million in 2008, with the increased profits largely due to a higher gold price.

At the end of 2007, Pogo’s reserves stood at 5.9 million tonnes grading 15.92 grams gold per tonne. This is enough ore to last through to 2016, though exploration is ongoing near the mine to extend its life.