BHP keeps 70% stake in Argentine project — Northern Orion wowed by prefeasibility study for Agua Rica deposit

BHP Copper has rejected an offer by Northern Orion Explorations (NNO-T) to buy an additional 40% interest in the Agua Rica project in northwestern Argentina.

The offer, details of which were unavailable at presstime, was made public just days before results of an initial feasibility study were released.

Stephen Quin, executive vice-president of Northern Orion, would not elaborate on the offer other than to say the company sees an opportunity to increase its interest in the project. “We will see where we go from here,” he told The Northern Miner.

Situated in Catamarca province, Agua Rica is a large copper porphyry deposit that contains significant values of gold, silver and molybdenum. Ownership is currently shared on a 70-30 basis by BHP Copper, an indirect subsidiary of Australian-based Broken Hill Proprietary (BHP-N), and Northern Orion.

The deposit is perched in the Sierras Pampeanas mountains, 17 km north of Andalgala (population: 10,000), at an elevation of 3,200 to 3,500 metres above sea level. It occupies both sides of a valley that has been eroded by a tributary of the Andalgala River.

The initial feasibility study was completed by BHP, in co-operation with Northern Orion and consulting firm Fluor Daniel Wright. The study examined the viability of a conventional open-pit mining and milling operation, and was based on potential daily throughput rates of 60,000 and 120,000 tonnes.

The study recommends “proceeding with the work required to complete a final feasibility study and development plan for the project.”

The initial study was based on 103 drill holes, completed prior to 1997, that resulted in a sulphide resource estimate of 802 million tonnes grading 0.61% copper and 0.034% moly, plus 0.24 gram gold and 3.17 grams silver per tonne. A cutoff grade of 0.4% copper was used. The values are equivalent to a contained resource of 10.8 billion lbs. copper, 601 million lbs. moly, 6.2 million oz. gold and 82 million oz. silver.

If the cutoff grade is lowered to 0.2% copper, the sulphide resource rises to 1.7 billion tonnes grading 0.44% copper, 0.028% moly, 0.19 gram gold and 3.01 grams silver, equivalent to 16.2 billion lbs. copper, 1.1 billion lbs.

moly, 10.2 million oz. gold and 166 million oz. silver.

Production in the early years would be enhanced by higher-grade mineralization in the Mi Vida and Trampeadero areas, which will serve as starter pits. An overlying leached cap will have to be stripped first, however, and metallurgical testwork continues to evaluate the potential for gold recovery from this material. Preliminary work does show the cap leaches. The cap is estimated to contain 89 million tonnes grading 0.41 gram gold (or 1.2 million contained ounces), based on a 0.25-gram cutoff.

If, on a daily basis, 60,000 tonnes were to be mined, the minable resource would total about 512 million tonnes grading 0.66% copper, 0.034% moly, 0.26 gram gold and 3.44 grams silver, with a stripping ratio averaging 2.35-to-1 over a mine life of 24.4 years.

Production in the first five years would average, on a yearly basis, 384 million lbs. copper, 12.6 million lbs. moly, 112,373 oz. gold and 1.25 million oz. silver. Then, from year six to 23, the level would likely decrease to 278 million lbs. copper, 6.2 million lbs. moly, 95,490 oz. gold and 1.3 million oz. silver.

On- and off-site operating costs are expected to average US$7.21 per tonne of ore. No costs were estimated on a per-pound-of-copper basis, but Quin said it appears to be in the range of US50-55cents in both cases.

Crushing and grinding tests indicate the ore is relatively soft, and extensive metallurgical flotation tests indicate recoveries of 87% for copper, 50% for gold and 65% for moly. A copper concentrate grading 33% would be produced, as well as a separate moly concentrate. A second phase of metallurgical testwork is under way.

The study proposes trucking the concentrate about 200 km to a rail head. The nearest paved road is 22 km away, at Andalgala.

Capital costs are projected at US$767 million. During the first five years, Agua Rica is calculated to provide average annual revenue of US$465 million and an operating profit of US$203 million. For years six through 23, the project is anticipated to generate US$371 million in revenue and US$138 million in operating profit on an annual basis. The payback period has not been disclosed.

The nominal internal rate of return is 16.4%, whereas the real rate of return is pegged at 13.2%. The nominal rate includes a 3% escalating cost.

The nominal net present value is estimated at US$309 million at a 10% discount, or US$447 million at an 8.25% discount.

The study assumes long-term metal prices of US$1 per lb. copper, US$4 per lb. moly, US$380 per oz. gold and US$5.25 per oz. silver, as well as 100% equity financing.

The 120,000-tonne-per-day model would equate to a minable resource of 681 million tonnes grading 0.59% copper, 0.033% moly, 0.25 gram gold and 3.61 grams silver. The stripping ratio is pegged at 1.8-to-1 over a mine life of 17 years.

Annual production over the first five years is projected to average 539 million lbs. copper, 18 million lbs. moly, 158,631 oz. gold and 1.9 million oz. silver. For years six through 17, yearly output would average 463 million lbs. copper, 20.4 million lbs. moly, 166,590 oz. gold and 2.6 million oz. silver.

Operating costs would average US$5.86 over the life of a

120,000-tonne-per-day operation, with total capital costs estimated at US$1.1 billion.

Annual revenue would average US$654 million during the first five years, generating annual earnings of US$290 million. For the remainder of the mine’s life, these figures would fall to US$592 million and US$234 million, respectively.

The real internal rate of return is estimated at 16.1%, while the nominal rate of return is projected at 19.1%. The nominal net present value would be US$488 million at a 10% discount, or US$659 million at an 8.25% discount.

The study does not incorporate the results of a further 60 holes completed in 1997, which expanded the previously defined limits of the resource and outlined a third area of higher-grade mineralization — the Filo Amarillo zone.

“We will have more tonnes of high grade in the early years, which is really what drives the economics of the project,” Quin said.

This year’s drilling has expanded the zone of mineralization to about 2,200 metres east to west, and up to 1,800 metres across. An updated resource is being calculated.

Quin said several factors ensure that a mine would be economical. These include the potential for reduced power and concentrate transportation costs, increased mill throughput as a result of softer ore, and the impact of increased tonnage and grade.

The study assumes that power will be extended from the town of Andalgala, though the power company could provide power directly to the mine site at no cost. Potential water sources are situated about 20 km from the proposed site.

BHP is in the process of drilling pilot holes in preparation for a bulk-sampling program in 1998. A final feasibility study is expected by this time next year. To date, about US$30 million has been spent exploring Agua Rica.

Northern Orion has 73.9 million shares outstanding and is owned 53.9% by Miramar Mining (MAE-T).