TORONTO (miningweekly.com) – Hudbay Minerals has entered into a definitive agreement to buy a 100% interest in QMX Gold’s Snow Lake project, in Snow Lake, Manitoba, which is expected to provide it with more operational flexibility as its nearby Lalor mine complex transitioned from the current zinc- and copper-rich lenses to gold or copper- and gold-rich lenses.

QMX Gold on Friday announced the agreement, which would see Hudbay pay $12.3-million in cash on closing and a contingent payment of $5-million, payable if the price of gold was equal to or greater than $1 400/oz on the third anniversary of the closing date.

The Snow Lake project consisted of the Snow Lake mine and an associated processing plant, which were currently on care and maintenance, and C$1.87-million in cash, which supported the closure obligations associated with the property.

The transaction was expected to close on or about April 30 and was subject to regulatory and third-party approvals and customary conditions precedent.

Analysts at Desjardins Capital Markets viewed Hudbay’s acquisition as a positive move.

“In either scenario – if Hudbay continues operating with the 2 700 t/d Snow Lake concentrator or if it builds the 4 500 t/d Lalor concentrator – the QMX Gold plant is a positive addition to Hudbay’s Lalor complex. If the company continues to operate the Snow Lake concentrator in the long term, the QMX Gold plant will increase throughput capacity at Lalor – we expect the benefit will depend on the capacity of the new plant and the relative mix of gold-rich ores in each given period.

“If Hudbay chooses to build the Lalor concentrator, the new concentrator could be smaller (a capital expenditure saving) or the combined capacity could exceed the previous 4 500 t/d design,” analyst Jackie Przybylowski said in a note to clients.

QMX said it would use the proceeds of the sale, including its right to receive the contingent payment, to pay down the credit facility held by Third Eye Capital (TEC). The company was currently negotiating with TEC to come to a mutually satisfactory resolution regarding the remaining debt outstanding.

QMX would continue to operate the Aurbel mill, at its Val d’Or property, to fulfil the custom milling agreement to process ore from the Elder mine for Abcourt Mines.

The company had recently extended the terms of the custom milling agreement to end-June, with the option for Abcourt to extend it by an additional month to process all of the ore provided by Abcourt. QMX also continued to look for other strategic acquisitions in the Val d’Or region to ensure the continuation of operations beyond the expiration of the custom milling agreement.