Higher Metal Prices drive Cerro Casale

Vancouver — Eleven years after partners Bema Gold (bgo-t) and Arizona Star Resource (AZS-V) discovered the Cerro Casale copper-gold deposit, majority owner Placer Dome (pdg-t) has started talks with lenders about financing the US$1.4-billion development project in northern Chile.

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

The last feasibility study indicated that the project is economically viable as a large-scale, low-grade open-pit mine at a gold price of US$350 per oz. and a copper price of US95 per lb.

The study envisioned an open-pit mine with a stripping ratio of 2.7-to-1 and 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.

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 a mine life of 18 years.

Assuming a copper credit of US95, cash operating costs are expected to be 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 pegged at 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 flotation, with the concentrate piped to the coast and shipped to a smelter for final processing.

However, in late 2000, falling gold and copper prices forced Placer to put the project on the back burner. “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, the project secured sufficient water rights to build and operate a plant, as envisioned in the feasibility study, and in March 2002, Chilean regulators approved the environmental impact study.

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

“I am tired of having US$350 [per ounce gold] and US95 cents [per pound copper] as the numbers out there that this project needs,” said Bema Chairman Clive Johnson at the annual general meeting. “We want to find out if we can move the yardsticks at all and have this project require less in terms of metal prices.”

Bema believes recent advances in mining technology could reduce the capital and operating costs.

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

Placer Dome President Jay Taylor described the project as “intriguingly large,” with a long life and low production costs, but stressed that it requires stable commodity prices.

“Cerro Casale is more attractive at current gold prices of about US$390 an ounce, and copper at US91 cents per pound,” he says.

The deposit is on the 450-sq.-km Aldebaran property, 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 reserves of 1.97 million oz. gold, and in 1997 Placer Dome became a joint- venture partner for the development and financing of the Cerro Casale operation.

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.