Higher prices drive Cerro Casale

Vancouver – Some 11 years after partners Bema Gold (BGO-T) and Arizona Star Resource (AZS-V) discovered the Cerro Casale copper-gold deposit, majority stake holder Placer Dome (PDG-T) has started talks with lenders about potential financing for the US$1.3 billion project in northern Chile.

Higher gold and copper prices prompted the major to update its 2000 feasibility study with an eye on moving the stalled project forward.

The last feasibility study indicated that the project is economically feasibility as a large-scale, low-grade open-pit mine with a gold price of US$350 per oz and copper prices at US$0.95 per lb.

The study envisioned an open-pit mine with a stripping ratio of 2.7-to-1 and minable proven and probable reserves of 1.03 billion tonnes grading 0.69 gram gold per tonne and 0.26% copper, equivalent to 23 million oz. gold and 6 billion lbs. copper. The calculation is based on a cutoff grade of 0.4 gram gold, a gold price of US$350 per oz. and a copper price of US95 per lb.

At a daily processing rate of 150,000-170,000 tonnes, the mine would produce an estimated 975,000 oz. gold and 287 million lbs. copper annually over an 18-year mine life.

Assuming a copper credit of US95, cash operating costs are projected at US$98 per oz. gold. Total costs, including life-of-mine capital, are pegged at US$203 per oz., whereas projected capital costs are a lofty US$1.43 billion.

Gold and copper recoveries are expected to be 76.3% and 87.1%, respectively.

Based on these figures, the internal rate-of-return after a 15% tax rate is projected to be 10.7%. The net present value, using a 5% discount rate, would be about US$915 million, and the project payback is estimated at 7.1 years.

The study recommended standard floatation, with the concentrate piped to the coast and shipped to a smelter for final processing.

However, falling gold and copper prices forced Placer to put the project on the back burner in late 2000.

“It’s in the freezer until the price [of gold] is better,” said Felipe Ruiz, regional director of Placer Dome’s Latin American division at the time.

During 2001, CMC secured sufficient water rights to build and operate a plant as envisioned in the feasibility study. In March 2002, CMC received formal approval of an Environmental Impact Study from the Chilean regulatory authorities.

Rising gold prices over the past year have once again propelled the project into the spotlight.

“I am tired of having US$350 (per oz gold) and US$0.95 (per lb copper) as the numbers out there that this project needs,” said Bema’s Chairman, Clive Johnson at the company’s Annual General Meeting. “What we want to find out is if we can move the yardsticks at all and have this project require less in terms of metal prices.”

Bema also believes that advances in mining technology since the original feasibility study could bring down the capital and operating costs.

Placer, which is required to spend US$1.3 billion on mine development to retain its 51% stake in the project has come on side and agreed to update the feasibility study in order to determine if there have been technological or other advancements since the completion of the study that could improve the project economics. The study is expected to be complete by March 1, 2004.

Placer’s president Jay Taylor described the project as ” intriguingly large,” with a long life and low production costs, but noted that it requires stable commodity prices.

“Cerro Casale is more attractive at current gold prices of about US$390 an ounce, and copper at US$0.91 per lb,” says Taylor.

The deposit lies on the 450-sq.-km Aldebaran property some 250 km southeast of Copiapo in the Maricunga region of the Andes Mountains, 150 km inland from the Pacific coast.

Arizona Star entered the scene in 1995 by inking a deal to earn a 49% stake in the property. The junior quickly outlined mineable reserves of 1.97 million oz of gold and in 1997 Placer Dome became a joint venture partner for the development, financing and construction of the Cerro Casale deposit.

Besides Cerro Casale, Aldebaran hosts two near-surface gold zones. Resource estimates at the Cerro Roman zone are pegged at 104.7 million tonnes grading 0.12% copper and 0.69 gram gold, whereas the Eva zone hosts a resource of 51.8 million tonnes grading 0.7 gram gold.

Arizona Star and Bema own a 51% and 49% stake, respectively. Placer can earn a 51% interest by arranging US$1.3 billion in mine financing and assuming responsibility for construction. Once the earn-in is complete, Bema will hold 24% and Arizona Star, 25%.