Canada-based Lundin Mining Corp. (LUN.TO) said Wednesday evening that it will buy the Eagle nickel and copper mine in the U.S. from Anglo-Australian mining giant Rio Tinto plc (RTNTF, RIO, RIO.L, RTPPF) for about $325 million. The transaction is expected to be completed in July 2013.
Lundin Mining has entered into a definitive agreement with Rio Tinto Nickel Co., a subsidiary of Rio Tinto, to buy the 100 percent ownership stake in Rio Tinto Eagle Mine LLC, which owns the underground Eagle mine located in northern Michigan.
The purchase price consists of a $250 million purchase amount, in addition to about $75 million in project expenditures from January 1, 2013 until closing of the transaction. The purchase price is payable in cash and subject to customary adjustments.
Paul Conibear, President and CEO of Lundin Mining said, "The acquisition of the Eagle Mine fits ideally within Lundin Mining's asset base and is the result of the disciplined approach we have been focused on for some time to acquire high quality, advanced stage assets in low risk, mining oriented jurisdictions. The Eagle Mine represents a very unique opportunity to acquire a high-grade project which is under construction and expected to begin generating significant levels of metal production and cash flow prior to the end of next year."
The Eagle Mine is located in Marquette County in the Upper Peninsula of Michigan. Project construction is slightly more than 50 percent complete, with initial production expected to commence in the fourth quarter of 2014.
Rio Tinto discovered the Eagle deposit in 2002 and after completion of pre-feasibility and feasibility studies, announced its decision to build the mine in July 2010.
Annual production over the first three full years, from 2015 to 2017, is expected to average about 23,000 tonnes of nickel and 20,000 tonnes of copper per annum, with additional by-product credits of precious metals and cobalt.
Lundin Mining said it will fund the purchase price from its current net cash balance of about $250 million and a portion of its existing $350 million revolving credit facility.
The company will use its existing credit facility to fund the remaining balance of project capital to be spent. This will be from ongoing cash flow and if necessary from an expanded debt facility or similar flexible funding instrument. The transaction is not conditional upon financing.
Rio Tinto has recently announced the potential sale of its Pacific Aluminum unit, and is seeking to sell its Canadian iron ore operations. The company is also reportedly pursuing an initial public offering of its diamond unit, after it failed to find a buyer for the division.
LUN.TO closed Wednesday's trading on the Toronto stock exchange at C$3.98, down C$0.05 or 1.24 percent on a volume of 959,268 shares.
RIO closed Wednesday's trading at $42.09, up $0.12 or 0.29 percent on a volume of 3.60 million shares.
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