Teck's Quebrada Blanca Phase 2 project in northern Chile. Courtesy of Teck Resources

Japanese mining giant Sumitomo will be Teck Resources’ partner on the Quebrada Blanca Phase 2 copper project in northern Chile in a deal worth US$1.2 billion.

Sumitomo Metal Mining and Sumitomo Corporation acquired a 30 per cent indirect interest in Teck subsidiary Compañia Minera Teck Quebrada Blanca, which owns Quebrada Blanca.

Teck has greenlit the construction of the project, which is slated to begin production in 2021.

“[Quebrada Blanca Phase 2] is one of the world’s premier undeveloped copper assets and this transaction further confirms the value of the project,” Teck president and CEO Don Lindsay said in a statement. “This partnership significantly de-risks Teck’s investment in the project, enhances our project economics and preserves our ability to continue to return capital to shareholders and reduce bonds currently outstanding.”

Sumitomo’s interest includes a US$800-million earn-in contribution and a US$400-million matching contribution. If the deal goes through, Teck will own 60 per cent of the mine, Sumitomo 30 per cent, and Chilean state agency Enami will control the remaining 10 per cent.

Teck said the deal has reduced its required equity contribution to the US$4.7-billion project to US$693 million, which it needs to deliver by late 2020. Going forward, Teck will front two thirds of the mine’s capex and Sumitomo the other third.

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Quebrada Blanca Phase 2, with total proven and probable mineral reserves of 1.2 billion tonnes at 0.52 per cent copper, 0.020 per cent molybdenum and 1.38 ppm silver, is one of the largest undeveloped copper resources in the world. The project has at least a 28-year mine life and is expected to produce 316,000 tonnes of copper equivalent per year for the first five years. Teck said engineering for the project is nearly 80 per cent complete.

With the new partnership agreement, the project will create an internal rate of return of between 19 and 24 per cent for Teck.

“QB2 will be a long life, low-cost operation with major expansion potential, including the option to double production or more, to become a top five global copper producer,” said Lindsay.

The company said it has started a scoping study on a potential phase three development, which it said could double the mine’s production capacity.

Sumitomo has agreed to pay Teck an additional US$50 million if the project’s mill reaches 154,000 tonnes per day.

The transaction is expected to close by April 2019.