Teck Resources Ltd. [TECK.B-TSX; TECK-NYSE] said Tuesday December 4 that it has agreed to sell a 30% stake in its Quebrada Blanca copper mine expansion in northern Chile to Sumitomo of Japan for US$1.2 billion.
As a result, Vancouver-based Teck has formally sanctioned the fully permitted US$4.7 billion project for development.
Sumitomo’s contribution includes an US$800 million up-front payment and US$400 million in matching contributions during development. Teck’s interest in the project would be reduced to 60% from 90%, leaving ENAMI (a Chilean state-owned mining company) with a 10% interest.
“QB2 is one of the world’s premier undeveloped copper assets and this transaction further confirms the value of the project,” said Teck President and CEO Don Lindsay.
The project is expected to produce 316,000 tonnes of copper equivalent in the first five years of mine life, putting the site among the top 20 copper producers in the world.
The all-in-sustaining cost is estimated at US$1.28 per payable pound of copper in the first five years of production.
Teck said QB2 is a vast deposit with expansion and extension potential. The initial estimated mine life of 28 years will utilize less than 25% of the current reserves and resource.
The combination of proceeds from the transaction and proposed project financing reduces Teck’s share of equity contributions towards the un-escalated US$4.7 billion estimated capital cost of the project to US$693 million. Teck’s first contribution is not required until late 2020.
In light of the significant reduction in QB2 funding required from Teck due to the transaction proceeds and Teck’s reduced project interest, the Teck board will consider an additional return of capital to shareholders when the transaction closes.
“QB2 will be a long life, low-cost operation with major expansion potential, including the option to double production or more, to become a top five global copper producer,” Lindsay said.
“The copper growth from QB2 will, over time, help to balance our portfolio so that the contribution of our copper business could be similar to our world-class steelmaking coal business,” he said.
“We are delighted to have Sumitomo Metal Mining and Sumitomo Corp. as partners and we look forward to building our long and productive history of working together.’’
Teck’s Class B common shares advanced on the news, rising 2.7% or 77 cents to $28.96 on volume of 1.46 million. The 52-week range is $39.08 and $24.05.
Teck said the project scope includes the construction of a 143,000 tonne-per-day concentrator and related facilities, which are connected to a new port and desalination plant by 165-km concentrate and desalinated water pipelines.
The target date for project completion and the start of commissioning and ramp up is the fourth quarter of 2021. Full production is expected in the middle of 2022.