Avanti Mining Inc. (TSX-V:AVT) claims it is one step closer to putting the abandoned Kitsault molybdenum mine back into production.
The Vancouver-based company said on Tuesday morning it had entered into an off-take agreement with an Asian steel producer for the sale of three million pounds of moly annually for four years if Kitsault is re-opened.
The deal also includes a non-binding letter of intent that would see the Asian steel producer buy a 10% stake in Kitsault for a yet to be negotiated price.
Avanti did not name its new partner or any of the financial terms of the agreements.
In an interview with Business in Vancouver Tuesday morning, Avanti CFO A.J. Ali said the steel producer’s name is being kept secret until the agreement is signed because it has sourced its moly from one miner from decades. He would not say exactly who the producer is, but hinted it may be based in Japan.
The news comes a month-and-a-half after the B.C. Supreme Court ruled the junior mining company could have access to the ghost town of Kitsault for mine-related activities (See “Supreme Court ruling irks ghost-town owner” – issue 1088, August 31 to September 6).
Kitsault is located 800 kilometres northwest of Vancouver near Prince Rupert.
The town was built in 1980 to support the mine, but in 1982 moly prices crashed and the mine was shuttered.
Virginia millionaire Krishnan Suthanthiran bought it for $5.7 million in 2005 with plans to turn the area into a destination retreat. He has accused Avanti of hyping the project and does not believe it will ever be built.
The new Kitsault mine is expected to cost $600 million to build, none of which had been secured until Tuesday’s announcement of an Asian partner.
According to a company release, if the letter of intent is signed the strategic partner will help Avanti procure up to 50% of the debt financing needed for the project.
Ali said the deal is a strong first step toward the company’s strategy to sell up to 30% of the project to fund its development.
“Discussions are under way with several other parties for the remaining 20% Kitsault partnership interest,” he said.
A final feasibility study for the project is expected next month, while the agreements are scheduled to close January 31, 2011.
Avanti’s shares were down approximately 2% to $0.23 at press time.