Equinox feasibility positive (November 14, 2005)

A revised feasibility study on the Lumwana copper project in northwestern Zambia shows a 20-million-tonne-per-year open-pit mine could be economic.

Project operator Equinox Minerals (eqn-t, eqn-a) commissioned the study, by consulting firm GRD Minproc, to update an earlier feasibility study produced in 2003. The new study reflects Equinox’s decision to sell concentrate to a smelter, rather than build a roasting and leaching plant to produce cathode-grade copper.

The study bases its conclusions on mining a reserve of 212 million tonnes grading 0.82% copper in two pits: Malundwe, with 95 million tonnes at 0.97% copper, and Chimiwungo, with 117 million tonnes at 0.69%. Another 5.9 million tonnes of oxide material, grading 0.83%, is included in the reserve, but not brought into the mining schedule. The pits would have a 17-year life, mining an average 20 million tonnes annually.

The reserve comes out of a measured and indicated resource of 269 million tonnes at an average grade of 0.83% copper, 0.02% cobalt and 0.02 gram gold per tonne. There is an additional inferred resource of 632 million tonnes at 0.64% copper and 0.01 gram gold per tonne.

A separate uranium-mineralized body has also been defined at Lumwana, and does not make up part of the mine plan. Instead, Equinox plans to mine the uranium-rich material selectively, and stockpile it for processing. The uranium resource, whose economics have not been assessed, consists of 9.5 million tonnes of indicated material grading an average 0.09% U3O8 and 2.6 million tonnes of inferred material at 0.04%. Both resource figures are based on a cutoff grade of 0.012% U3O8.

Average life-of-mine copper production from Lumwana would be 150,000 tonnes per year, but higher-grade zones are scheduled for early mining, yielding an average 188,000 tonnes annually over the first five years. Based on a copper price of US$1 per lb. (US$2,200 per tonne), the operation would pay back its capital cost in 4.6 years.

Ore would go to a conventional flotation plant, and Equinox has already made offtake deals with Palabora Mining, an affiliate of Rio Tinto (RTP-N, RIO-L), and with Ongopolo Mining and Processing, operators of the Tsumeb copper smelter in Namibia, to take part of the concentrate. The company is working on other sales agreements.

Metallurgical testing shows copper recoveries between 95% and 97%, with concentrates from Malundwe grading 43.3% copper and those from Chimiwungo, 29.5%. Nickel and cobalt from Chimiwungo ores (at 0.22% and 0.76%, respectively) may trigger smelter penalties, but there are no other deleterious elements at significant concentrations.

Lumwana’s operating costs are estimated at US63 per lb. (US$1,390 per tonne) in the first five years of production, and an average US70 per lb. (US$1,540 per tonne) over the life of the mine. Those figures do not include credits for byproduct gold or cobalt.

The study puts the capital cost of the project at US$387 million, plus US$96 million for a mining fleet. US$67 million in contingencies and US$257 million in deferred capital expenditures bring the total to US$807 million. The company has lined up US$355 million in project loans; it had about US$21 million in cash at the end of September.

At the base copper price of US$1 per lb., the project’s net present value, after tax, is US$68 million at an 8% discount rate. The internal rate of return on the project is 10.3%. Moving the copper price to US$1.20 per lb. (US$2,645 per tonne) pushes the rate of return to 21.5% and the net present value to US$433 million.

Equinox’s Environmental Impact Assessment for Lumwana was approved in mid-October by the Zambian government’s Environmental Council, marking the final stage in government approvals for the project. Equinox hopes to have construction started in late 2005, which will require a development agreement with the government, an agreement for power supply from the national electrical utility, and the engagement of a main contractor.