Mining giant Rio Tinto eyes Shore Gold diamond project
Two weeks after its share price soared to a five-year high amid speculation over preliminary deal negotiations, a Saskatoon-based diamond exploration and development company has signed an option agreement with the BritishAustralian mining giant Rio Tinto that could be worth up to $75 million over the next seven and a half years.
Shore Gold Inc., which has been working to establish a diamond mine east of Prince Albert since 1995, said Friday in a news release that it simultaneously bought out its partner in the Fort a la Corne joint venture, thereby getting a 100 per cent stake in its Star- Orion South diamond project, and signed the option deal with Rio Tinto Exploration Canada Ltd.
“We are extremely pleased to partner with Rio Tinto to further develop the potential of the project,” Shore Gold president and CEO Ken MacNeill said in a statement. “Rio Tinto is one of the few companies in the world with the resources and expertise to move forward with a project of the magnitude of the Star-Orion South Diamond Project.”
Before the deals closed, Shore owned 69 per cent of the diamond project — which its 2011 feasibility study concluded will cost about $2.5 billion to turn into a producing mine — while Newmont Canada FN Holdings ULC owned 31 per cent. Under the terms of the buyback, Newmont will end up with almost 20 per cent of Shore’s shares plus $3.2 million if a mine is developed.
The company’s deal with Rio Tinto, meanwhile, is divided into four phases, each of which allows the global mining giant’s subsidiary to acquire a stake in the project in exchange for completing exploration and development work or making payments in lieu of those expenditures.
If Rio Tinto chooses to complete all four phases, it will own 60 per cent of the project.
Rio Tinto representatives did not immediately respond to a request for comment on Friday.
Shore Gold is currently working on an updated feasibility study, which MacNeill has said will “significantly” reduce the project’s capital costs. The company obtained environmental approval from the federal government for the project in 2014, but consultations with nearby James Smith Cree Nation aimed at securing provincial approval are still ongoing.
James Smith Cree Nation Chief Wally Burns told the Saskatoon StarPhoenix last month that he was “not impressed” with the company ’s communication efforts, and that he wanted a meeting with MacNeill and other executives.
The company is also expected to be at the centre of a proxy battle at its next annual general meeting, which was scheduled for June 30 but postponed last month to a later date. The SGF Shareholders Association Inc., a group of shareholders concerned about the company’s direction, came close to ousting three of its directors at a controversial meeting last June.
This isn’t the first major diamond exploration deal to be inked in recent months. Late last year, De Beers Canada Inc. abandoned its seven-year, $20.4-million option agreement with CanAlaska Uranium Ltd. after concluding that kimberlite “targets” on the northern Saskatchewan property likely consisted of magnetic and organic materials.