Incorporated as Northern Orion Resources Ltd. In 1986, the company proceeded to change its name to Northern Orion Explorations Ltd. later in the same year. On June 16, 2003, the company underwent a 10 for 1 share consolidation and the company's name was changed to Northern Orion Resources Inc. (NNO). NNO has several wholly-owned subsidiaries; namely, Northern Orion Holdings SA, Northern Orion Argentina Holdings SA, and Minera Mantua Inc. The company presently has two principal mining properties located in Argentina.
The company's primary project is its 12.5% interest in the Bajo de la Alumbrera gold/copper mine (Alumbrera) located in the Catamarca Province of Argentina. In addition, NNO owns 100% of the Agua Rica copper project located approximately 34 km east of the Alumbrera mine in the same Argentinean province.
In April 2003, NNO entered into a purchase agreement with Rio Algom Ltd., a wholly-owned subsidiary of BHP Billiton (BHP), to acquire a 12.5% interest in the Alumbrera mine in Argentina. This acquisition was finalized in late June 2003 for a purchase price of US$90 million. Rio Algom agreed to defer payment of up to US$30 million until May 2005, with US$25 million of the deferred amount bearing interest at the London Inter-Bank Offer Rate (LIBOR) plus 2%, and the balance bearing interest at LIBOR plus 5%.
In order to finance the large Alumbrera purchase price, NNO raised total gross proceeds of approximately US$77.8 million from the sale of more than 810 million special warrants on a pre-share consolidation basis at a price of $0.13 per warrant. After giving effect to NNO's June 2003 share consolidation, each 10 special warrants entitle the holder to acquire one common share of the company and one-half of one common share purchase warrant. Each whole warrant will be exercisable to purchase one NNO common share at a price of $2.00 until May 29, 2008. A total of US$60.62 million of the proceeds from this private placement were used to finance the 12.5% Alumbrera acquisition.
Alumbrera is operated by Xstrata Plc. (formerly MIM Holdings Ltd.) of Australia. The mine produced 440 million pounds of copper and 759,360 ozs of gold during the year ended June 30, 2002, at a cash cost of US$0.21 per pound (net of gold credits). It is estimated that Alumbrera will produce an average of 430 million pounds of copper and 630,000 ozs of gold annually through 2010 at a projected cash cost of less than US$0.10 per pound of copper, placing the mine among the world's lowest cash cost copper producers. As of June 30, 2002, Alumbrera had proven and probable mineral reserves of 4.1 billion pounds of copper and 7.1 million ozs of gold. Over a minimum of 8 years, NNO's projected annual share of production is expected to average 55 million pounds of copper and 75,000 ozs of gold. With a low net cash cost per pound of copper produced, Alumbrera can remain highly profitable even if the price of copper significantly decreases.
The 3 months ended September 30, 2003, marked the company's first full quarter of operations at the Alumbrera mine. NNO's share of operating cash flow was $11.1 million on sales of approximately $21.7 million. The company's attributable share of production amounted to 13.3 million pounds of copper and 19,700 ozs of gold. The total cash cost (net of gold byproducts) was US$0.088 per pound of copper with average realized prices for copper and gold of US$0.79 per pound and US$362 per oz, respectively. Subsequent to the end of the third quarter, NNO was advised that its net cash distribution from Alumbrera during the period of June 1, 2003, to November 30, 2003, was close to US$7.5 million.
In February 2003, the company reached an agreement with BHP to acquire the remaining 72% interest in the Agua Rica project that NNO did not already own for a purchase price of US$12.6 million. This transaction with BHP was completed in May 2003. NNO paid US$3.6 million in cash with the remaining US$9 million deferred until June 2005 and secured by a pledge of interest in the Agua Rica project. In order to finance the initial payment, the company completed a non-brokered private placement of 4 million units at $1.00 per unit to raise gross proceeds of approximately $4 million. Each unit consisted of one common share and one non-transferable share purchase warrant.
To date, approximately 175 drill holes have been completed at Agua Rica. In addition, substantially all other field studies have been concluded for a bankable feasibility study, including bulk sampling, laboratory and pilot scale metallurgical testing, geotechnical design, water exploration, and pre-feasibility level engineering.
CONCLUSION
Management believes that the cash distributions from the Alumbrera mine will be sufficient to meet NNO's ongoing financial commitments. The 12.5% acquisition of Alumbrera immediately moved the company into the mid-tier ranks of copper producers. If the price of copper remains above the US$1.00 per pound mark and the average production cost of Alumbrera is maintained close to the projected US$0.10 per pound, the company will continue to realize phenomenal profit margins. It should be noted that the long-term economic viability of the mine is virtually guaranteed, even if the price of copper were to fall dramatically. Due to the exceptionally low operating costs, NNO should benefit from a substantial cash flow stream over the next decade. This cash could potentially be used to bring Agua Rica into production.
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