Noranda signed as operator as Montana ends Noxon saga

Noranda Minerals has emerged as the mystery partner in a successful bid by a Washington holding company to acquire the Noxon silver-copper deposit in Montana.

The Toronto-based subsidiary of Noranda Inc. (TSE) has agreed to acquire a 55% interest in the deposit which it plans to develop in a joint venture with Montana Reserves Corp. of Spokane, Wash.

Regarded as one of the world’s largest silver deposits — it hosts 142 million tons of grade 2.10 oz silver per ton and 0.78% copper — the Noxon project was previously held in a joint venture involving U.S. Borax and Chemicals, Jascan Resources (TSE) and COATS-listed Atlantic Goldfields.

But estimated development costs of around $200 million(US) were regarded as much too high for a couple of junior exploration companies like Jascan and Atlantic. Just six months after they acquired their combined 45% interest for $3.5 million they agreed to sell to Montana Reserves for $40 million.

However the option agreement was conditional on Montana Reserves being able to acquire U.S. Borax’s 55% interest for $54 million and as the Sept 6 closing date on the Borax agreement approached, there were major doubts concerning Montana’s ability to raise the acquisition fee.

And, although it was known that Montana Reserves had contacted a Canadian operator in a bid to finance the acquisition, Noranda wasn’t confirmed as the Noxon partner until 4:30 a.m. Sept 8.

With Montana Reserves’ stake now reduced to 45%, the joint venture will spend around $200 million to develop the Noxon deposit toward a production decision. “We think it could be a pretty good mine if we can overcome the environmental permitting problems,” said Alex Balogh, president of Noranda Copper.

Under the terms of an amended agreement, Jascan and Atlantic each received $4 million(US) cash on closing for their 45% interest. On Dec 30, they will each receive an additional $6 million plus accrued interest payments of 9% annually, plus a 10 cents per ton royalty.

While neither Balogh nor Montana Reserve President Frank Duval were prepared to reveal the extent of Noranda’s contribution to the $54 million which Montana Reserves paid to U.S. Borax, it is believed to be considerable.

The joint venturers have already set up a $4-million “working account” and operations are scheduled to begin almost immediately.

With silver prices down to $6.46 (US) from $7.80 in July, Atlantic Goldfields President Bill Burton recently told The Northern Miner that Noranda probably won’t see a return on its investment for at least five years.

“The operator would have to sink a 2 1/2-mile adit or long tunnel to access the deposit at depth,” he said. As a result, it could cost up to $30 million to complete a feasibility study, he said.

According to Burton, the amount of data needed to complete an environmental impact report is also a big factor in calculating the cost of bringing the property to production.

But for Noranda, the prospect of adding to its silver and copper reserves appears to outweigh the difficulties in turning Noxon into a long term money spinner.

“The acquisition is consistent with the fact that our ore reserve base in copper has been shrinking,” said Bologh who expects the project to operate at a rate of about 20,000 tons per day.

“It will supplement our custom milling operations in Quebec,” he said. Since Noranda will be driving an adit into the side of a mountain the company isn’t taking anything for granted. “Development costs may be much higher than we anticipated,” said Balogh.

But the project’s similarity to Noranda’s Gaspe mine operation in Murdochville, Que., and Asarco’s nearby Troy copper-silver mine, may be of some help over the 5-year development period.