Western Copper forms alliance with Kennecott

Fresh from its success at the El Salvador massive sulphide project in central Mexico, Western Copper Holdings (WTC-T) is forming a strategic alliance with Kennecott to explore and develop mineral properties in the Mexican states of Zacatecas and San Luis Potosi.

As part of the deal, Kennecott, a division of Rio Tinto (RTP-N), will take down a $2.5 million private placement of Western Copper, comprising 250,000 shares at $10 per share, plus 250,000 share purchase warrants exercisable for two years at $12 each.

The alliance will include the Faja de Plata properties, which Western Copper already holds under option from Kennecott, but not Western’s El Salvador joint venture with Teck (TEK-T), nor any of Kennecott’s copper porphyry targets.

Western Copper must spend a minimum $1 million per year on exploration over a 5-year period

to acquire a 100% interest in the properties from Kennecott, which retains either a 51% back-in right or a royalty, on any individual property. Western Copper says it becomes vested after the first year.

The one-time back-in right will be triggered each time a property is deemed to have an inferred resource, at which point Kennecott can elect to earn a 51% interest by making all subsequent payments to advance the property to a feasibility stage, or by spending a total of US$25 million within a 5-year period.

Under a separate deal, Western Copper can acquire a 100% interest in the Penasquito mineral project by reimbursing Kennecott its expenditures incurred to date, which are estimated at US$5.1 million. Western has the option to pay in cash or shares.

The Penasquito project is situated 200 km northeast of the city of Zacatecas in the Concepcion del Oro district. Since beginning exploration in 1992, Kennecott has carried out geophysical and geochemical surveys, and drilled 71 holes totalling 23,495 metres. That work has identified the Chile Colorado zone, two large breccia pipes/diatremes and several outlying targets that have returned high-grade intercepts.

The Chile Colorado zone is said to show potential for significant tonnage grading in the range of 2% to 3% combined lead-zinc, 80 grams silver and 0.4 gram gold per tonne.

The known mineralized system covers 9 sq. km and lies beneath a 30-metre cover of alluvium.

In related news, Teck has resumed drilling with two rigs on the San Nicolas massive sulphide find at the project known as El Salvador, in Zacatecas state. Drilling is currently stepping out to the west and south of the first six holes, which were completed in late 1997.

El Salvador is a joint venture held 55% by Teck and 45% by Western Copper.

Luismin, a Mexican gold mining junior, holds a back-in right to a 25% participating interest in the San Nicolas discovery. Teck has the right to acquire an additional 10% interest in the project by arranging production financing and can buy a further 5% from Western Copper based on the net present value of the project, using a 15% discount rate, upon completion of a feasibility study.