Boleo economics meet hurdle (September 14, 2005)

A preliminary economic study on the Boleo base metal deposit in the state of Baja California Sur, Mexico, shows the project is attractive enough to justify a final feasibility study.

Owner Baja Mining (BAJ-V) is now planning around a final feasibility study by the middle of 2006, starting with a month-long test mining trial to begin in mid-September.

The study was based on a measured and indicated resource estimate of 86 million tonnes grading 1.09% copper, 0.09% cobalt and 0.7% zinc, in three manto bodies on the property. An additional inferred resource of 108 million tonnes, with average grades of 1.18% copper, 0.08% cobalt and 1.07% zinc, is spread over those three mantos plus one more.

The deposit, which is relatively flat-lying, would be mined by either a bord-and-pillar method (a modification of room-and-pillar where the hanging wall is allowed to collapse after mining) or by shortwall mining. Both methods use continuous-mining machines.

The mine and a plant producing 50,000 tonnes of copper cathode, 2,000 tonnes cobalt cathode and 23,000 tonnes zinc sulphate annually would have a capital cost around US$292 million. Operating costs of US$19.90 per tonne of ore translate to a zero production cost for copper after credits based on a cobalt price of US$12 per lb. and a zinc price of US45 per lb. (US$990 per tonne). Copper prices are assumed to average US95 per lb. (US$2,315 per tonne).

Cash flow analyses of the project put the internal rate of return at 21%, with after-tax net present values of US$308 million at a 6% discount rate, US$226 million at 8%, and US$164 million at 10%.