Vancouver’s Capstone Mining (TSX:CS) has signed a major agreement to become a copper producer in Chile.
The company, which operates mines in Yukon and Mexico, announced a deal Sunday to buy Far West Mining (TSX:FWM) in cash and shares. The deal values Far West at $725 million.
It represents a 30% premium to Far West’s average share price over the last month of trading, and gives Capstone access to the junior company’s highly prospective Santo Domingo project in Chile.
“It definitely launches us to an entirely new growth platform,” Capstone president and CEO Darren Pylot told Business in Vancouver Monday.
Santo Domingo is a large-scale copper-iron-gold deposit located near road, rail and port infrastructure.
Far West, which is also based in Vancouver, is working on a pre-feasibility study that would outline the size of the deposit and how much it would cost to build.
Pylot said early estimations are that Santo Domingo would have a 20-year mine life and cost more than $1 billion to build.
That’s a steep hill to climb for a smaller producer such as Capstone, but the company has brought in a strategic investor to get the project into production by 2015.
As part of the deal announced Sunday, Capstone signed a long-term strategic partnership with state-owned Korea Resources Corp. (KORES).
The partnership would see KORES buy a 30% stake in Santo Domingo for $210 million and arrange financing to build the project.
KORES has also agreed to buy half of all the copper and iron that Santo Domingo will one day produce.
Pylot said KORES would also become Capstone’s largest shareholder, buying an 11% stake in the company for $170 million.
“This would be a bit too big for Capstone on its own … we would not be in complete control of the timeline had we not brought a partner in,” Pylot said.
At press time, Capstone’s shares were down $0.18 to $4.03 while Far West’s shares were up $0.49 to $8.17.