Flooding, claims, taxes boost cost of Alumbrera — Rio Algom still predicts startup in third quarter

The cost of the Bajo de la Alumbrera copper-gold project in Argentina has surged to nearly $200 million as a result of record rainfall and additional expenses.

The mine is still slated to open ahead of schedule, in the third quarter, with the first shipment of concentrate scheduled before year-end. The cost of the operation will be about 16% higher than initially expected, reports 25%-owner Rio Algom (rom-t).

The mine is being developed by operator Minera Alumbrera, which is owned by Rio and Australian firms MIM Holdings and North, with 50% and 25% interests, respectively.

Reserves and resources are pegged at 766 million tonnes averaging 0.63 gram gold per tonne and 0.5% copper. The operation is expected to produce 180,000 tonnes copper and 640,000 oz. gold per year for more than 20 years. According to Rio, higher production during the early years will elevate Alumbrera, by 2000, into the world’s top 15 copper producers and into the top 10 gold producers.

Last year, the northwestern province of Catamarca, in which Alumbrera is situated, received the second-highest summer rainfall on record in Argentina. The rains created flash floods near sections of the concentrate pipeline route and delayed its construction in areas of mountainous terrain. Flooding also exposed lengths of pipeline in some places and restricted access for remedial work. Despite the weather, none of the pipeline was damaged.

Minera Alumbrera will take precautions to secure the pipeline against similar conditions in the future. Options range from remedial reinforcement at critical sections to re-routing the pipeline around areas of steep, and potentially unstable, terrain. These measures could add as much as US$70 million to the cost of the project.

A review of project costs has identified roughly $130 million in additional expenses, including unresolved contractors’ claims, a precautionary increase in working capital, revisions to the estimate for value-added tax payments and the schedule of refunds from the government prior to startup.

Minera Alumbrera will recommend to shareholders and the Argentine company that holds the mining concession that the project’s budget be boosted to as much as US$1.1 billion from US$903 million.

The precise figure, according to Rio, is dependent on the timing of project commissioning and on the extent to which remedial work on the concentrate pipeline is necessary.