July 26 (Reuters) – Baja Mining Corp, which is grappling with cost overruns at its flagship Boleo project in Mexico, said it secured an interim funding of $90 million, giving the project a new lifeline.

The Canadian miner, which owns 70 percent of the copper-cobalt-zinc project, said the Korean consortium that owns the remaining 30 percent has committed to contribute the amount by Aug. 30 in the first stage of financing.

Shares of Baja, which has a market value of about C$31 million, rose 12 percent to 9.5 Canadian cents on Thursday on the Toronto Stock Exchange. They have fallen 85 percent since the company first disclosed the cost overruns in late April.

Spending at Boleo is expected to be $246 million more than the $1.14 billion estimated in 2010. Baja had said it will not be able to fund the project beyond Aug. 1.

The funding, which is likely to help complete construction of the project, however raises concerns about shareholder value as it reduces Baja’s stake in the project.

Baja said its interest in the project will fall to 49 percent from 70 percent when the consortium pays half of the amount committed and could be further reduced to 10 percent if the consortium injects more funds.

“The Koreans are going to come and try to save the project but they are going to take a pound of flesh to do it,” said analyst Stefan Ioannou of Haywood Securities.

The second stage of financing has not yet been committed, but the consortium may choose to contribute additional funds to help complete the project, the company said.

Haywood’s Ioannou, who sees the funding as a last resort for Baja, said the Korean consortium could likely inject another $150 million to $200 million.

Baja said if the consortium does not contribute the entire $90 million in the first stage of financing or chooses not to proceed with the second stage of funding, i t would have to shut down the operations.

OTHER OPTIONS

Baja raised going concern doubts in May and hired BMO Capital Markets to help it find possible sources of funding for the project.

Mount Kellett Capital Management LP, which holds about 20 percent stake in Baja and is its largest shareholder, said earlier this month it would not provide debt or equity financing for the project.

It had, however, said it would consider providing permanent financing for the company and the project if Baja was willing to tie up with a strategic investor that has experience in managing such projects.

Mount Kellett spokesman Dan Gagnier declined to comment on Thursday’s news.

Privately held Dreyfus, Baja’s second-largest shareholder, in June sought an independent investigation into the cost overruns at the Boleo project.

“You are looking at a resource company with no exploration assets and a very minority interest in a likely producing project. So it is quite a different looking company than how it looked, say, six months ago,” Ioannou said.