Agnico Eagle Mines Ltd. [AEM-TSX, NYSE] has agreed to subscribe for a 50% interest in Minas de San Nicolas, SAPI de CV, a wholly owned subsidiary of Teck Resources Ltd. [TECK.A, TECK.B-TSX; TECK-NYSE] which owns the San Nicolas copper-zinc development project located in Zacatecas, Mexico. As a result of the Transaction, Teck and Agnico Eagle will become 50/50 joint venture partners at San Nicolas.
“San Nicolas is a high-quality project, located in a leading mining jurisdiction, with high grades, extremely competitive capital intensity, and first quartile costs,” said Don Lindsay, President and CEO of Teck. “The opportunity to add the operating and development experience of Agnico Eagle should generate substantial benefits for the project including for all stakeholders throughout the project life cycle.
“This is a unique opportunity to create a long-term partnership between two high quality mining companies working together to de-risk and optimize a world class VMS deposit in a premier mining jurisdiction,” added Ammar Al-Joundi, President and CEO of Agnico Eagle. “Agnico Eagle’s project development, permitting and construction experience in Mexico, combined with Teck’s base metals expertise, operating excellence and marketing leadership, are complementary skillsets and will contribute to the timely and successful development and operation of San Nicolas.”
Agnico Eagle will subscribe for US$580 million of MSN shares, giving Agnico Eagle a 50% interest in MSN. The subscription proceeds received from Agnico Eagle will be used by MSN to fund the first US$580 million of post-closing costs with subsequent funding to be contributed according to each partner’s ownership percentage. Agnico Eagle’s contributions will be made as study and development costs are incurred – there is no up-front payment from Agnico Eagle
The US$580 million share subscription implies a notional US$290 million acquisition cost to Agnico Eagle for 50% of the San Nicolas project plus the contribution by Agnico Eagle of 50% of the first US$580 million of project costs for its own account.
Agnico Eagle’s funding in the first two years is expected to be approximately US$50 million; establishes a 50/50 joint venture between two Canadian-based global mining leaders each with demonstrated track record of successful joint operations.
Governance arrangements with equal representation from Teck and Agnico Eagle, to leverage and implement each shareholder’s skillsets. Agnico Eagle to be deemed to be a 50% shareholder in MSN for governance purposes upon closing of the Transaction, which is expected in the first half of 2023.
San Nicolas Project Highlights: Located in Zacatecas, a major mining state in Mexico, with significant geological potential and numerous poly-metallic and precious metals opportunities. In addition, Zacatecas has excellent access to infrastructure and a skilled workforce.
San Nicolas is the largest undeveloped volcanic-hosted massive sulfide deposit (VHMS) deposit in Mexico and is one of the largest undeveloped VHMS deposits globally. As at December 31, 2021, Teck estimated San Nicolas to contain 105.2 million tonnes of proven and probable mineral reserves averaging 1.12% copper, 1.48% zinc, 0.4 g/t gold and 22 g/t silver, or more than 2.0% on a copper equivalent basis.
Prefeasibility study completed by Teck in March 2021 describes attractive economics and project parameters: the project contemplates a modern truck-and-shovel open pit, processing, and flotation operation; first production expected in 2026, with an estimated mine life of 15 years and meaningful potential for mine life extension and regional exploration upside; expected to produce 63 thousand tonnes per annum (ktpa) of copper and 147 ktpa of zinc in concentrate over its first five years of production; average life of mine head grades of 1.13% copper and 1.49% zinc; average C1 operating costs of US$(0.16)/lb copper and US$0.44/lb copper over the first five years of production and life of mine, respectively, net of by-products; US$842 million development capital cost estimate; 2.6 year payback and 33% after-tax Internal Rate of Return (IRR) based on US$3.50/lb copper and US$1.15/lb zinc.
Teck and Agnico Eagle anticipate that development capital costs could be in the range of US$1,000 million to US$1,100 million, based on current cost environment and estimate accuracy. With development capital costs in this range, and assuming spot prices of approximately US$3.57/lb copper and US$1.46/lb zinc, the estimated payback period would be 2.5 to 2.8 years with an estimated after-tax IRR of 33% to 30%.
A detailed plan to complete a feasibility study, permitting, and community engagement has been developed, with initial work underway since January 2022. Further, an environmental and social baseline survey, including in-depth archaeological surveys and clearances, was carried out by Teck from 2018 to 2021.
The feasibility study is expected to be completed early in 2024 with project sanction thereafter subject to receipt of permits.