PERTH (miningweekly.com) – Copper and gold miner PanAust has entered into a $125-million agreement to buy mining major GlencoreXstrata’s 80% interest in the Frieda River project, in Papua New Guinea.

The company will own the project in a joint venture (JV) with another Australian firm, ASX-listed Highlands Pacific, and has announced plans for a project half the plant scale envisaged by GlencoreXstrata and at a third of the cost.

Highlands Pacific MD John Gooding has welcomed the PanAust partnership, saying the companies had similar views on the project development scale.

“Frieda can be a great copper project for Papua New Guinea, but developing it as a mega-project as first envisaged five or six years ago by Xstrata, could face a number of challenges given the current market environment,” he said.

The most recent feasibility study by the JV partners had considered a project with the potential to deliver an openpit mining operation averaging around 190 000 t/y of copper and 280 000 oz/y of gold, over a 20-year life-of-mine.

However, as part of its due diligence, PanAust conducted a scoping study based on a smaller-scale 24-million-tonne-a-year conventional openpit and flotation operation, providing an average 100 000 t/y of copper and 160 000 oz/y of gold over an 18-year mine life.

Development capital was estimated in the range of between $1.5-billion and $1.8-billion.

However, the miner said that given the size of the existing mineral resource relative to the scoping study proposal, and the potential for exploration to define additional mineral resource, it was likely that there was scope for expanding the project, with PanAust adding that a feasibility study on the project would include an option analysis on future expansion.

Work on a feasibility study consistent with PanAust’s development concept would proceed until the satisfaction of conditions precedent.

PanAust has agreed to pay GlencoreXstrata an initial $75-million over two installments, with the first $25-million payment due upon the transaction close. The second installment would be made by the end of December 2015.

In addition, on the successful completion of development at Frieda River, GlencoreXstrata would receive a 2% net smelter return royalty to a total aggregate of $50-million.

PanAust also announced that it would also be taking a 7.5% shareholding in Highlands through a share placement, with the miner acquiring more than 64.4-million shares in Highlands at a subscription price of A$0.0776 each.

PanAust would also have a 90-day option period once the Frieda River acquisition was completed, to subscribe for a further 64.4-million shares in Highlands, at a similar subscription price.

Meanwhile, PanAust has agreed, subject to the completion of its agreement with GlencoreXstrata, to relinquish any potential clawback rights over the Star Mountain exploration leases, also in Papua New Guinea.

This would result in Highlands holding full ownership of all four exploration leases north of the Ok Tedi mine, and opened the opportunity for Highlands to consider farm-out or JV opportunities with third parties.