Rancagua, Chile — Niche copper producer
The company produces copper by treating and reprocessing tailings from
Established by ex-Codelco management, the MVC operation began treating El Teniente tails in the early 1990s. The initial facility, still in operation, simply redirected the fresh tailings stream through a unique, parallel series of cascade cells that agitates the slurry, using flow-driven paddles, then skims off the sulphide-flotation layer as “pre-concentrate” copper. Essentially gravity-driven, early operations were inexpensive, but annual copper production was only in the order of 3,000 tonnes (6-7 million lbs.).
In the mid-1990s, a grinding facility was added, increasing copper recoveries from the tails. The US$21-million expansion increased the plant’s daily capacity to 100,000 tonnes. Currently, the plant consists of four ball mills with an adjacent flotation circuit extracting the sulphide copper liberated by the re-ground tailings.
Amerigo Resources acquired its option to buy the MVC mine from several Chilean investors in early 2003. The option was assigned to Amerigo by Steven Dean and Klaus Zeitler, who subsequently became chairman and president, respectively. The duo brought a distinguished pedigree to the company. Dean had been president and a director of
By mid-2003, Amerigo had sought financing and exercised its option to buy MVC for US$20 million. With the acquisition complete, the company started looking for ways to expand MVC, particularly as El Teniente was increasing its production rate, boosting the tailings supply to 130,000 from 90,000 tonnes per day.
In addition to fresh tailings supplied via the concrete launder from El Teniente, MVC held the contractual right to augment the tailings supply by 10,000 tonnes per day from Codelco’s historic Colihues tailings pond, just south of, and adjacent to, the re-processing facility.
Colihues, a flooded impoundment comprising 3.7 sq. km, was used by Codelco between 1977 and 1987 as a repository for its tailings. It contains more than 200 million tonnes of tailings with an average grade of 0.27% copper — more than double that of the current fresh tailings, which grade 0.11% copper.
Amerigo completed its first phase of expansion at MVC in mid-2004 by adding classification and flotation equipment to the circuits, thereby boosting recoveries. Just over 31 million lbs. copper were produced last year, enabling Amerigo to earn US$10.9 million, or about 600% more than in 2003. Nevertheless, production for the year was 12% below projected levels, owing to a temporary drop in copper sulphide grades in Codelco’s tailings.
Colihues tailings recoveries also fell below forecasts, owing to flaws in the extraction equipment operated by a sub-contractor. Subsequently, MVC began operating Colihues directly and installed new pumps on-board the dredging barges used on the flooded impoundment. The new equipment includes excavator-cutting assemblies to aid in the break-up of the subaqueous tailings.
In late 2004, the company reached an agreement with Codelco to increase the amount of Colihues tailings it can extract, upping the daily amount to 45,000 tonnes by 2006 from the then-current 10,000 tonnes. At the increased rates, well over 10 years of feed-material is contained at Colihues.
In addition to scaling-up its copper production, the company is installing a separate molybdenum flotation circuit at MVC. Over the past four years, concentrates produced by the mine have averaged 29.8% copper and 0.89% molybdenum. The new circuit will recover this molybdenum fraction from the concentrate. The Colihues tailings have an average moly grade of 0.011%.
Installation of the moly circuit is largely complete, with 500,000 lbs. of production anticipated for 2005. An initial, 3-year sales agreement has been entered into with Molybdenos y Metales (MolyMet), the world’s largest molybdenum producer. MolyMet’s conversion facility is only an hour’s drive north, along the Pan-American Highway, from MVC’s operation.
With the second expansion phase largely implemented, Amerigo will next expand the mill by adding four ball mills, as well as flotation cells and recovery equipment. The additional mills will more than double grinding capacity.
For 2005, the company expects to produce 42 million lbs. copper. A further increase to 65 million lbs. annually is anticipated by 2006. The concentrate produced at MVC is trucked to the Las Ventanas smelter of Empresa Nacional de Mineria.
Operations at MVC are closely geared to world copper prices, beyond the obvious market price for its primary commodity. A royalty is paid to Codelco. No royalties are payable when the copper price is below US80 per lb. (for tailings with copper content of 0.09-0.1499% copper). For copper prices between US80 and US95 per lb., a sliding-scale royalty of 0-10% is payable. When the copper price is between US95 and US$1.30, the royalty is 10%. And with copper at US$1.30 or higher, the maximum royalty of 13.5% is payable.
For the in situ tailings at Colihues, the royalty structure is the same except for a nominal 3% payable when copper is below US80. Molybdenum production through MVC is subject to a flat 10% royalty.
In 2004, the royalty paid to Codelco was almost US$4.8 million.
Also, a royalty dividend is paid to holders of Class A shares of an Amerigo subsidiary. The shares, owned indirectly by certain directors and officers of Amerigo, pay a royalty of US$0.01 per lb. when the copper price is below US80 per lb. The royalty bumps up to US$0.015 per lb. when the price of copper is US80 or higher. In 2004, a dividend of US$466,832 was payable to the Class A shareholders.
Milling of tailings accounts for about 60-65% of operating costs, with electrical consumption and the supply of hardened steel grinding balls comprising most of the expense. Recent increases in Chilean energy costs, coupled with soaring world steel prices, have hampered the project’s economics.
Amerigo’s operating contract with Codelco-El Teniente, guaranteeing access to the tailings, runs to early 2022.
Chile’s state-owned mining company Codelco is the largest copper producer in the world, with annual output exceeding 1.6 million tonnes (3.5 billion lbs.). Its El Teniente division, which includes a smelter complex, mines copper from the world’s largest underground mine (about 2,400 km of underground workings), having begun operations in 1904.
In addition to annual copper production of over 330,000 tonnes (720 million lbs.), about 4,700 tonnes (10.5 million lbs.) of byproduct molybdenum and more than 800,000 tonnes of sulphuric acid are produced. Reported reserves of more than 3 billion tonnes are sufficient to maintain production at the planned increased rates for more than 60 years. The tailings produced from El Teniente’s concentrating plant are transported by gravity flow along an 80-km-long concrete channel, or launder, to an impoundment in the central valley. It is this launder that feeds the fresh tailings to the MVC facility, and transports it from the site after reprocessing.
Situated just south of the Colihues impoundment is the older Cauquenes tailings disposal site. The 6.4-sq.-km Cauquenes impoundment was filled by El Teniente operations from the mid-1930s through to the mid-1970s. It is estimated to contain as much as 500 million tonnes grading up to 0.4% copper, with both an oxide and sulphide component. Amerigo has no contractual rights or agreement in place with Codelco that would enable it to gain access to this material.
Amerigo has recently seen its share price j
ump about 50% to $2.50. With 69.5 million shares outstanding, the company has a market capitalization of $175 million. The company also has 20 million warrants listed, exercisable at 70 apiece for a common share. The warrants expire in June 2005.
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