Teck the latest major to join Arena in Atacama

Teck Resources (TSX: TCK.B; NYSE-MKT: TCK) has become the third company this year to sign a joint-venture option agreement with prospect developer Arena Minerals (TSXV: AN) on its Atacama property in Chile, 50 km from the port of Antofagasta.

The October transaction with Teck follows similar joint-venture option agreements with Japan Oil, Gas and Metals National Corp. (JOGMEC) in July, and B2Gold (TSX: BTO; NYSE-MKT: BTG) in February.

The option deals cover 85% of the Atacama property, which Arena Minerals picked up from industrial minerals producer Sociedad Quimica y Minera de Chile (NYSE: SQM) in July 2013.

SQM had held the land package for several decades and mined nitrates from the top five to 10 metres of overburden on various parts of the property, rather than exploring for copper, despite the district’s known copper porphyry systems.

The Atacama property, for instance, is just 3 km from KGHM’s Sierra Gorda mine; 8 km from BHP Billiton’s Spence mine (which ranks among the top-20 copper producers in the world); 16 km from Antofagasta’s El Tesoro and Esperanza mines; 11 km from Glencore’s Lomas Baya mine; and 27 km from Anglo American’s Mantos Blancos mine.

One feature that has attracted so many companies to Arena’s 920 sq. km property, CEO William Randall says, is that it is close to the Antofagasta Calama Lineament, an area famous for porphyry clusters such as Chuquicamata, Codelco’s main asset, and the Spence and Sierra Gorda porphyries. (The porphyries form where the lineament intersects major north–south structural features.)

The ground has also seen little, if any, exploration for copper and gold. “There is a big gap of known copper porphyry deposits, despite the favourable setting,” Randall says, “because it has been in the hands of industrial minerals giant SQM for several decades.”

After discovering the Spence deposit more than a decade ago, a number of companies approached SQM to acquire land nearby, but no deals were made. “Our property missed a lot of exploration that resulted from the Spence discovery, so it was basically undrilled and untested before us,” Randall says.

Under Arena’s latest deal, Teck can acquire up to a 60% interest in two claim blocks: the Solitario and Paciencia North prospects. Teck will need to spend up to US$19.5 million on exploration in two stages over six years. Teck will also finish two equity financings in Arena at 27¢ per share (a premium to the market), for a total C$1.5 million (C$1 million on signing and C$500,000 before July 26, 2016). It also has to make a US$450,000 one-time cash payment and a US$100,000 recurring annual payment.

Teck will have a second option to acquire another 11.3% interest by spending an extra US$15 million on exploration before July 26, 2021, or by delivering a feasibility study before July 26, 2023.

Arena’s management team thought it would look for partners for Atacama when the company sat at less than a $15-million market capitalization. “We realized that to properly drill these areas that we had defined, we’d probably have to raise US$10 to US$20 million, and at that market cap it would be highly punitive to our shareholders,” he says. “We contacted a long list of companies, focusing — given the market — on large companies with good financial resources, and with exploration teams that could do the work properly. We also had to juggle areas of interest, but it was these three that fit all of our requirements, because they wanted different pieces of land that didn’t overlap.”

The first option deal Arena did with B2Gold was for two claim blocks: Pampa Paciencia and Cerro Barco. The second, with JOGMEC, was for three claim blocks: Carmen Alto, Pampa Union and Cerro Guacate Sur. The claims under option to JOGMEC and B2Gold are contiguous, while Teck’s claims are north and south of B2Gold’s Pampa Paciencia.

Arena and its partners are targeting large porphyry deposits, Randall says, “and discovering one would be of a magnitude that majors would be interested in.”

Together, the three deals result in roughly US$56 million that could be directed towards exploration on Arena ground. In addition to the 790 sq. km covered by the option agreements, Arena has 130 sq. km of ground remaining — on which it has identified three prospects so far — that could be available for future deals.

The company has 79.5 million shares outstanding, with insiders holding 14%; mining entrepreneur Ross Beaty, 12%; SQM, 5%; and Teck Resources, 4%.

“We had met with Ross Beaty on previous occasions, and he was impressed with our land package in Chile” Randall says. “He acquired his 12% stake post the B2Gold transaction.”

Randall adds that despite poor market conditions and the possible risk that Arena couldn’t finance the property, finishing the first joint-venture option showed that the company “had the ability to execute the plan and complete the SQM option agreement”

He says that “since then we have completed the other two deals, which takes out the risk completely. We won’t need to finance for the next couple of years, so Beaty has gained exposure and has been a supportive shareholder — evidenced by his recent participation in the Teck private placement, which was done at a premium to market.”