El Morro appraisal favourable

An independent scoping study on the La Fortuna copper-gold deposit in north-central Chile has come back positive for partners Metallica Resources (MR-T) and Noranda Resources (NRD-T).

Noranda, which can earn a 70% interest in the El Morro project, has outlined an inferred resource in the La Fortuna area totalling 410 tonnes and averaging 0.61% copper and 0.56 gram gold per tonne.

The resource, based on cutoff grade of 0.4% copper, consists mostly of primary sulphides. About 60 million tonnes, running 0.76% copper and 0.27 gram gold, sit in a zone of supergene enrichment formed in the deposit’s core.

Metallica hired Knight Piesold Consulting to carry out the study. In its review, the consultant used a 10% discount rate, a US$1-per-lb. copper price and a US$300-per-oz. gold price.

According to the study, La Fortuna can churn out 4.5 billion lbs. copper and 332,000 oz. gold over 15 years to yield a net present value (NPV) of US$345 million and an internal rate of return (IRR) of 19.6%. At a copper price of US$1.25 per lb. and a gold price of US$325 per oz., the NPV balloons to US$694 million and the IRR to 27.6%.

A conceptual mining plan calls for the extraction of 375 million tonnes of material annually at a stripping ratio of 1.25-to-1 to produce 298 million lbs. of the red metal and 332,000 oz. gold. This assumes a head grade of 0.6% copper and 0.55 gram gold.

Material from the open pit would undergo conventional milling and flotation to produce a single concentrate containing both copper and gold. Smelting and refining would take place in Chile.

Cash operating costs are pegged at US33 per lb. copper (net of gold credits). On a per-tonne-of-ore-mined basis, this translates into US$4.35.

Capital costs ring in at US$800 million, to be covered soley on an equity basis.

For Metallica, the operation envisaged equates to $3.65 per share, or $7.30 at the higher metal prices, should Noranda vest its interest.

Noranda can earn its stake by spending US$10 million on exploration and paying US$10 million to Metallica by September 2005. The major may be required to provide 70% of Metallica’s share of development costs at an interest rate of Noranda’s cost of financing plus 1%. Also, Noranda must complete a bankable feasibility study on the project by September 2007.

El Morro is one of three porphyry zones discovered at La Fortuna. A fourth prospect, Cantarito, is a high-sulphidation, epithermal gold zone that is related to the La Fortuna system.

A 6,000-metre drilling program aimed at expanding La Fortuna to the north, northwest and at depth is to begin in the coming weeks. So far, the zone has been traced over an area measuring 1,200 metres in length and 900 metres in width.