Antofagasta plc has signed an agreement with Argonaut Resources whereby Antofagasta can earn a 70% interest in Argonaut’s Lumwana West copper exploration project in northwest Zambia by spending $18.9 million on exploration plus the amount required to complete a feasibility study. If the project is feasible, Argonaut is either carried into production or bought out prior to construction.

Argonaut will be the operator until an election by Antofagasta to take over as operator during Phase II of the project.

A major drilling program of more than 8,500 m started at Lumwana West in May.

The Argonaut-Antofagasta agreement outlines five phases of development: Phase I involves spending of $5 million by Antofagasta within one year in exchange for a 25% interest in the project. Phase II calls for exploration and development expenditures of $15 million by Antofagasta within four years of the completion of Phase I at a minimum expenditure rate of $2.5 million/year. Antofagasta can earn an effective 51% interest in the project by completing Phase II.

Phase III involves the completion of a feasibility study. Antofagasta may conduct additional work necessary to start the feasibility study, such as a preliminary feasibility study, prior to electing to start the definitive study. Antofagasta will have up to two years to complete additional work and four years to complete the feasibility study. Antofagasta can earn an effective 70% interest in the project by completing the feasibility study.

Phase IV is the period following the delivery of the feasibility study but prior to the development decision. Argonaut may elect not to contribute or to dilute during this period, subject to certain reimbursement conditions to be paid out of future dividends.

Phase V is the period after a development decision when, if Argonaut decides not to fund its pro-rata share of the project, Antofagasta may elect to either carry Argonaut into production, with Argonaut’s development costs being funded by 60% of future dividends, or buy out Argonaut’s interest for its pro-rata share of the project’s net present value.

Argonaut is an ASX-listed Australian junior company. Antofagasta will become a cornerstone shareholder in Argonaut via a $1.1 million placement.