VANCOUVER — Capstone Mining Corp. is buying Far West Mining Ltd. and has struck a deal to develop the acquired company’s major Chilean copper project — transactions worth more than $1.1 billion.
The two Vancouver companies announced Sunday that Capstone (TSX:CS) will acquire Far West (TSX:FWM) for about C$725 million in a cash and share deal that values the target company at C$9.19 per share.
Meanwhile, Capstone has entered into a $210 million deal with Korea Resources Corporation to form a joint venture to develop Far West’s Santo Domingo copper-iron-gold project in Chile.
Separately the Korean company is investing another $170 million in a private placement to become Capstone’s biggest shareholder.
Under the agreement with Capstone, the South Korean company known as Kores will also take a 30 per cent stake in the Chilean project and help finance its development.
The deals announced Sunday reflect continued consolidation in the global mining industry as smaller companies merge to advance major projects and attract new financing from metals users in Asia and other parts of the world.
Darren Pylot, Capstone’s president and CEO, said the transactions will help advance a major metals project and benefit his company’s shareholders.
“The proposed acquisition of Far West is consistent with Capstone’s strategy of building a growth focused mid-tier copper producer in the Americas and represents an excellent value opportunity for our shareholders,” he said in a release.
“Santo Domingo is a robust development opportunity that will substantially increase Capstone’s leverage to copper and long-term growth profile. Our strategic partnership with Kores brings significant financial support and mitigates risk for all shareholders.”
Rick Zimmer, Far West’s president and CEO, said “the proposed transaction delivers an immediate premium to our shareholders.”
“Moreover, it provides our shareholders with the opportunity to participate in the future potential of the combined portfolio of producing and development assets. We are pleased to be announcing this transaction with Capstone.
“Their financial strength and current base of operations, combined with the Kores partnership, provide a clear path forward for the funding and development of Santo Domingo. This transaction has the potential to unlock the full value of Santo Domingo for all shareholders.”
The Chilean project has the potential to be a long lived significant copper and iron ore producer, with projected average annual production of 65,000 tonnes of copper and four million tonnes of iron concentrate.
The company expects to complete a pre-feasibility study by this year’s third quarter, based on even higher resource estimates for the project.
As part of the partnership with Kores, the South Korean company will:
l Acquire a 30 per cent interest in Santo Domingo for $210 million;
l Arrange for a debt financier to offer to provide funding for 65 per cent of the capital costs of the project and fund 30 per cent of the balance itself;
l Enter into a supply agreement to buy 50 per cent of all copper and iron produced from Santo Domingo;
l And buy an 11 per cent stake in Capstone — about 39 million shares for about $170 million — to become the Canadian company’s largest shareholder.
Capstone produces copper from two operating mines, the 100 per cent owned Cozamin copper-silver-zinc-lead mine in Zacatecas state, Mexico and the Minto copper-gold-silver mine in the Yukon.
The company is also developing the high grade Kutcho copper-zinc-gold-silver deposit in British Columbia.
Far West operates in Chile and Australia and its main project is the wholly owned Santo Domingo copper-iron-gold deposit, about 800 kilometres north of the Chilean capital Santiago.
In Friday trading on the Toronto Stock Exchange, Capstone shares fell six cents to $4.21, while Far West stock rose 35 cents to $7.68, a gain of 4.8 per cent.