PERTH (miningweekly.com) – Diversified miner South32 has inked a conditional agreement to acquire a 50% interest in the Eagle Downs metallurgical coal project, in Queensland, and to assume control of the operation.

The remaining interest will be held by Aquila Resources, a subsidiary of China BaoWu Steel Group.

Under the terms of the agreement, South32 will pay $106-million up-front on the completion of the transaction, and a further $27-million three years after the transaction. A coal price linked production royalty will also be payable, capped at $80-million.

“We have a long-standing relationship with BaoWu as a supplier of manganese ore and alloy. We are very pleased to be able to further strengthen this relationship by assuming operatorship of Eagle Downs,” South32 CEO Graham Kerr said on Tuesday.

He noted that the acquisition would embed an attractive development option within South32’s growing operating footprint and put the company’s strong balance sheet to work in a disciplined manner.

“This high-quality metallurgical coal project benefits from prior investment, which has the potential to support its accelerated development and deliver significant value to both South32 and Aquila,” Kerr said.

The project is fully permitted and is immediately adjacent to BHP’s Peak Downs mine. The project was placed under care and maintenance in late 2015, and currently has a coal resource of 1.12-billion tonnes, of which 67% is in the measured category and 12% in the indicated category.

Following the acquisition, South32 will undertake a final feasibility study to optimise the mine’s design and development, and subject to the findings of this study and the requisite approvals, the company will construct a multi-seam underground longwall metallurgical coal mine and processing plant with a dedicated rail spur and train load-out facility.

Meanwhile, South32 has accepted a new copper/gold project, in Peru, under its strategic alliance agreement with ASX-listed AusQuest.

The Parcoy iron-oxide/copper/gold project will now become the fourth exploration project in Peru to secure both technical and financial support from South32.

The project is some 25 km north of the town of Chala and immediately north-west of the Los Chapitos prospect, where a new copper discovery was recently made.

Under the strategic alliance agreement, South32 will have exclusive rights to AusQuest projects by funding selected projects up to the drilling stage and can elect to spend a further $4-million on each project to earn a 70% interest, with the right to an additional 10% by completing a prefeasibility study.