Canadian miners Teck Resources and Agnico Eagle will become joint owners of the San Nicolas copper/zinc development project, in Mexico, the companies announced on Friday.

Agnico Eagle would subscribe for $580-million shares in Teck subsidiary Minas de San Nicolás (MSN), giving it a 50% interest in the project.

The subscription proceeds would be used by MSN to fund the first $580-million of post-closing costs with subsequent funding to be contributed according to each partner’s ownership percentage.

Agnico Eagle’s contributions would be made as study and development costs are incurred – there would be no up-front payment from Agnico Eagle.

The share subscription implies a notional $290-million acquisition cost to Agnico Eagle for 50% of the San Nicolás project plus the contribution by Agnico Eagle of 50% of the first $580-million of project costs for its own account.

“San Nicolás is a high-quality project, located in a leading mining jurisdiction, with high grades, extremely competitive capital intensity, and first quartile costs,” said president and CEO Don Lindsay.

“The opportunity to add the operating and development experience of Agnico Eagle should generate substantial benefits for the project including for all stakeholders throughout the project life cycle.”

Teck CEO Ammar Al-Joundi added that it was a unique opportunity to create a long-term partnership between the two mining companies.

“Agnico Eagle’s project development, permitting and construction experience in Mexico, combined with Teck’s base metals expertise, operating excellence and marketing leadership, are complementary skillsets and will contribute to the timely and successful development and operation of San Nicolás.”

San Nicolás is the biggest undeveloped volcanic-hosted massive sulphide deposit (VHMS) deposit in Mexico and is one of the biggest undeveloped VHMS deposits globally. At December 2021, Teck estimated San Nicolás to contain 105.2-million tonnes of proven and probable mineral reserves at average grades of 1.12% copper, 1.48% zinc, 0.4 g/t gold and 22 g/t silver, or more than 2.0% on a copper equivalent basis.

A March 2021 prefeasibility study estimates development capital of $842-million for a mine that will produce 63 000 t/y copper and 147 000 t/y zinc in concentrate over the first five of 15 years. Average C1 operating costs of $(0.16)/lb copper and US$0.44/lb copper over the first five years of production and life-of-mine, respectively, net of by-products.

Teck and Agnico Eagle anticipate that development capital costs could be in the range of $1-billion to $1.1-billion, based on current cost environment and estimate accuracy. With development capital costs in this range, and assuming spot prices of approximately $3.57/lb copper and $1.46/lb zinc, the estimated payback period would be 2.5 to 2.8 years with an estimated after-tax internal rate of return of 33% to 30%.