Goldman Sachs boosts stake in Frontera Copper

Vancouver — Goldman Sachs Group has issued another “early warning” report related to its increased ownership of Frontera Copper (FCC-T, FRCPF-O), an emerging copper producer developing the Piedras Verdes project in southern Sonora state, Mexico.

Goldman Sachs announced in mid-April that it had acquired 1 million shares to boost its interest in Frontera Copper to 4.38 million shares (and related warrants), or about 11.6% of the company’s issued and outstanding shares.

A week or so later, the board of Frontera approved a rights plan to ensure “fair treatment” of shareholders in the event of a takeover bid, and to give the board time to “explore other alternatives to maximize shareholder value,” should an offer be made. The company said it did not adopt the plan in response to any particular takeover proposal.

On May 4, Goldman Sachs Group announced it had acquired another 1 million shares to increase its position to 5.38 million shares, plus warrants with carrying rights to another 1.46 million shares, which represents about 13.84% of the company’s issued and outstanding shares (assuming full exercise of the warrants). The New York City-based firm stated that the shares were acquired in the ordinary course of its investment activities.

Frontera Copper is building an open-pit, heap-leach mine at Piedras Verdes. The solvent extraction-electrowinning (SX-EW) operation is scheduled to begin production later this year at an annual rate of 70 million lbs. of LME Grade A cathode copper, with average life-of-mine costs estimated at US79 per lb., including royalties.

Initial capital costs are estimated at about US$90 million, and existing reserves are sufficient to produce a total of 942 million lbs. copper during the proposed 18-year mine life. Minable reserves stand at 191 million tonnes grading 0.36% copper.

The project hosts additional resources and exploration targets viewed as having potential to extend the mine life and improve the project’s overall economics. The most prospective target is the Cerro Chato prospect situated 1.5 km west of the proposed pit. Initial trenching at Cerro Chato returned highly encouraging results, notably 1.87% copper over 18 metres and 1.55% copper over 15 metres.

At a copper price of US$2 per lb., Piedras Verdes has a net present value and internal rate of return estimated at US$370.9 million (at an 8% discount rate) and 68.1%, respectively. The project is located near Alamos, and was explored by various companies in the 1980s and 1990s, notably Azco Mining (AZMN-O) and Phelps Dodge (PD-N).

Frontera Copper acquired Phelps Dodge’s 70% interest in 2002 for a US$500,000 down payment and deferred payments capped at US$16 million. Azco’s 30% interest was diluted after it elected not to participate in the project; as a result, Frontera Copper owns 100% of the project.