Xstrata to invest US$1.47B in new Peruvian mine

As part of Xstrata’s (XTA-L, XSRAF-O) goal of raising copper production by 50% and cutting costs by 20% before the end of 2014, the Switzerland-based mining giant has given its copper division the go-ahead to invest US$1.47 billion in developing the Antapaccay copper deposit as a brownfield expansion to its existing Tintaya copper mine.

The Tintaya open-pit mine in southern Peru is expected to reach the end of its life in 2012 and Antapaccay, just 10 km away, will use some of Tintaya’s existing infrastructure.

Construction of Tintaya-Antapaccay will begin in the third quarter of this year with operations to be commissioned in the second half of 2012. (The Peruvian government has already approved Xstrata’s environmental assessment study.)

Developing the Antapaccay deposit as a low-cost, long-life operation would raise annual copper in concentrate production from Tintaya by 60% to an average of 160,000 tonnes for the first five or six years, transforming the mine into a long-life business with a projected lifespan of at least 20 years.

Costs are projected to fall because of lower strip ratios, better economies of scale and the use of a modern concentrator facility. Tintaya’s open pit will be used to store tailings from Antapaccay. The ore will be processed in the new 70,000-tonne-per-day concentrator facility and the concentrate will be transported by truck to Matarani port for shipment to customers abroad.

In a conference call for analysts and investors, Xstrata Copper chief executive Charlie Sartain noted that the project, along with other projects currently in construction or approaching the approval stage, will lift the company’s total copper production to nearly 1.5 million tonnes a year by the end of 2014, an increase of 50%.

“The reality is that our current copper production is in the order of 930,000 tonnes or 940,000 tonnes and we see copper production by the end of 2014 going up to about 1.45 million tonnes and moving up to 1.5 million tonnes by 2015,” Sartain said.

Tintaya started production in 1985. Xstrata acquired the open-pit mine from BHP Billiton (BHP-N) in June 2006, along with the satellite Antapaccay and Coroccohuayco exploration targets.

Currently, Tintaya has a concentrator and solvent extraction- electrowinning plant and produces about 100,000 tonnes of copper in concentrate and cathode each year.

In August 2009, Xstrata Copper upgraded its resource estimate for Antapaccay to 720 million tonnes grading 0.56% copper, plus gold credits, using a 0.2% copper cutoff grade.

Since then, the company has been ramping up its copper development projects. In January 2010, Xstrata approved a US$1.3-billion investment in the Antamina copper-zinc mine in Peru’s Ancash region to expand ore processing capacity by 38% to 130,000 tonnes per day.

In October 2009, Xstrata approved a US$293-million investment to add eight years to the life of its Lomas Bayas copper mine in the Atacama Desert, 120 km east of Antofagasta in northern Chile. It intends to do so by developing the Fortuna del Cobre satellite deposit, 3 km from the existing Lomas Bayas operation. The project, known as Lomas Bayas II, will extend the life of the mine to 2020 at a sustained and expanded rate of 75,000 tonnes per year of copper cathode. The extension project is expected to be completed in the second quarter of 2012. Xstrata acquired Lomas Bayas as part of its acquisition of Falconbridge in 2006.

Then in December 2009, Xstrata declared it would spend US$542 million to extend the life of its Ernest Henry Mining operations near Cloncurry in Queensland, Australia, to at least 2024, by transforming the existing open-pit operation to a major underground mine and building a magnetite extraction plant.

Sartain noted that the next major project to come online in Peru would be Las Bambas, about 150 km away from Tintaya, which would add another 400,000 tonnes of contained copper.

Capital expenditure on Las Bambas is forecast to reach US$4.2 billion.

Sartain said that Xstrata was “progressing toward the status of a leading copper producer” and would also see a transformation in its cost position as these projects come to fruition. And the timing couldn’t be better, as Xstrata believes it will be delivering copper into a tight market in the coming years.

“We are doing these (projects) with the firm belief that we will be delivering into a supply-constrained copper market and that’s an important factor,” he explained.

In terms of Antapaccay, Sartain said that engineering work started in mid-2009 and is well advanced. The company ordered the main mills, crushers and other equipment awhile ago and is expecting delivery of the mills in September or October 2010.

Construction will begin in the third quarter. Pre-stripping will start in mid-2011, and by the third quarter of 2012 and early 2013 Xstrata would start commissioning the project.

Cash costs, net of gold credits, would be in the order of US90¢ per lb., compared with about US$1.40 per lb. at Tintaya.

In the first five years of production, Antapaccay would produce about 160,000 tonnes but that number does reduce in the sixth and subsequent years to 120,000- 140,000 tonnes, Sartain said.