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Foran Mining reached an agreement to extinguish Teck Resources’ back-in rights on its Bigstone, Balsam and Hanson properties.
It pays for a miner to secure control of land holdings surrounding a more advanced property, and that’s exactly what Foran Mining (TSXV:FOM) did on Monday. In a move to take greater control of land holdings surrounding its McIlvenna Bay property in east-central Saskatchewan, the company reached an agreement to extinguish Teck Resources’s (TSX:TCK.B) back-in rights on Foran’s Bigstone, Balsam and Hanson properties.
Under the terms of the agreement, Foran will issue 1 million common shares to Teck in return for that company’s back-in rights being extinguished. On top of that, if Foran sells any of the properties before September 30 2016, it will pay 20 percent of the sale proceeds to Teck, or 10 percent of the sale price if any properties are sold between September 30, 2016 and September 30, 2018. The removal of the rights is expected to be completed later this month.
Foran president and CEO, Patrick Soares, was positive on the news, stating, “[e]xtinguishing the back-in rights on the Properties simplifies the ownership structure of Foran’s landholdings surrounding the McIlvenna Bay property. It gives the Company the freedom to fully explore or joint venture the Properties, as well as adding a well-respected major mining company to Foran’s strong shareholder base.”
Importantly, the agreement looks to have come on good terms, as the CEO also stated, “As a shareholder, Teck can now participate in the advancement of all Foran’s projects, including our large and well-located McIlvenna Bay zinc-copper deposit.”
Good news ahead of McIlvenna Bay PEA
In a research note from Haywood Securities, Stefan Ioannou stated Foran’s Bigstone property in particular could be a “potential source of (higher grade) satellite feed” that would compliment the project currently being developed at McIlvena Bay. The analyst noted a 1990 historic estimate for Bigstone that pegged resources at 3.75 Mt grading 2.03 percent copper and 0.33 grams per tonne of gold. Furthermore, he stated that geophysical surveys undertaken this winter at the property look to have moved Foran closer to defining that resource.
As for McIlvena, a preliminary economic assessment (PEA) for the project is “expected to be complete this quarter,” according to Ioannou. Resources for the copper-zinc-gold–silver deposit at that property currently stand at 13.9 Mt grading 13.19 percent zinc equivalent in the indicated category and 11.3 Mt grading 13.52 zinc equivalent in the inferred category. Ahead of that report and more technical data, Ioannou stated, “we conceptually envision a US$200 million, 3,000-tonne-per-day ramp-accessed mining operaton, ” that would potentially produce “~25 million pounds of copper and +40 million pounds of zinc” per year over a 14 year life of mine.
The importance of zinc
Although the analyst notes sets zinc’s contribution to McIlvenna’s life-of-mine revenue at just 32 percent, he stated, “this byproduct profile significantly enhances the project’s intrinsic value given the scarcity of large advanced-stage zinc development projects in a market that is facing a medium-term supply shortfall.”
He also points out that the zinc side of the project would benefit from Hudbay Minerals’s (TSX:HBM) existing zinc refinery in the area, and that Foran investors would benefit from “full exposure to successful project execution,” unlike other advanced projects in the region, which he notes are underpinned by pre-emptive back-in rights owned by Hudbay.
Given McIlvenna’s potential, the move to secure a more simplified ownership of its land holdings in the region looks to have been a positive move for Foran, and investors will want to keep an eye on the company and on developments in the area surrounding Flin Flon, especially given the current sentiment surrounding zinc. As Ioannou told Zinc Investing News, “there’s a good argument for a run in the zinc price into 2016, and anyone in that space could stand to do well on the back of that.”
Overall, the analyst gave Foran a rating of “buy”, setting his target price for the company at $0.35.
At close of day on Tuesday, shares of Foran were selling for $0.22. The company’s share price has certainly varied this year, but overall, Foran is up a modest 4.76 percent year to date.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Foran Mining is a client of the Investing News Network. This article is not paid-for content.