Xstrata enters Nunavut with purchase of Hackett River properties

Sabina said it needed a port and a road before it could invest in a silver and zinc mine at Hackett River. The Bathurst Inlet port and road project could be part of the answer for Xstrata, Hackett River’s new owner. (PHOTO BY JANE GEORGE)

Xstrata, the world’s largest zinc producer, is entering the silver market with its acquisition of properties in Nunavut’s Kitikmeot region from Sabina Gold and Silver Corp..

Sabina announced today that it plans to sell its 100-per-cent owned silver-rich Hackett River property and others claims to Xstrata Canada Corp..

Under the terms of the agreement, Xstrata will pay $50 million in cash for the properties, which are located 75 kilometres southwest of Bathurst Inlet, a June 2 news release from Sabina said.

Additionally, Xstrata has agreed to spend at least $50 million on exploration and other expenditures on the properties over a four-year period and to complete a feasibility study.

Sabina also receives a silver production royalty equal to 22.5 per cent of the first 190 million ounces of silver produced at Hackett River and other properties and 12.5 cent of silver from the properties afterwards.

Sabina keeps its gold-rich Wishbone claims at the southeast of Hackett River.

“This transaction creates significant value for our shareholders and for the Territory of Nunavut. It transforms Sabina into a purely precious metals company, with a potentially significant source of value in our ongoing silver royalty” said Tony Walsh, Sabina’s president and chief executive officer.

“Our goal is to become a mid-tier gold company producing between 300k and 400k ounces of gold per year from Back River, a project scope we believe we can expedite.”

With Xstrata taking over at Hackett River, Sabina shareholders as well as the stakeholders in Nunavut are likely to see the Back River gold mine move ahead more quickly.

Xstrata’s ownership also means that Hackett River will be developed and become a producing silver mine earlier, he said.

Sabina’s operations may also benefit from the use of infrastructure which Xstrata will build for Hackett River, he said.

“This transaction solidifies Sabina’s precious metals focus and poises the Company for a potential market re-rating as a gold company. Certainly having the strength of a major company like Xstrata in close proximity to our projects helps to mitigate against the challenges of mining in the north,” Walsh said.

Xstrata Zinc Canada Chief Operating Officer Manuel Alvarez said “we now look forward to working with local stakeholders in Nunavut in the coming years as this project moves forward.”

Hackett River, located 45 km west of Sabina’s Back River gold project in Nunavut, is one of the largest undeveloped silver deposits in the world.

Over the last 18 months, Sabina shifted its efforts to developing its Back River gold deposits.

Recognizing that Sabina owned “two potentially world class projects” and given” the size and complexity of Hackett River,” Sabina asked the Bank of Montreal Capital Markets to look for a strategic partner on the project.

The objective of this strategy was to allow Sabina to focus on developing its gold assets, potentially enabling production sooner at a smaller scale at Back River, while at the same time continuing to push Hackett River forward, says the news release.

Last March, the Nunavut Resources Corp., the first Inuit-owned mining development company, and Sabina announced they would work together on infrastructure development in the Kitikmeot.

Sabina had pinned its hopes on the development of the Bathurst Inlet Port and Road facility, known as BIPAR, to help provide its mining projects with supplies and infrastructure and lower the capital costs.

The $270-plus million BIPAR project, talked about for years, was to have included the construction of a dock and a 211-km road to Conwoyto Lake that would pass about 100 km from the proposed Hackett River mine site — but that project so far hasn’t moved ahead due to a lack of money and interest.

In its deal with the NRC, Sabina’s will give the group up to $2 million as “seed funding” to develop a work plan for joint infrastructure projects in the Kitikmeot.

Now with Xstrata in the picture, this deal, which is still on the table, could lead to a modified, scaled-down version of BIPAR or simply to a better airstrip so that Sabina can get its gold-rich deposits into production more quickly and economically.