McEwen Mining improves Los Azules’ economics

VANCOUVER — It has been nearly three years since McEwen Mining’s (TSX: MUX, NYSE: MUX) wholly owned Los Azules copper porphyry project in the cordillera region of San Juan, Argentina, was put through the rigours of an economic study, and a lot has changed for the better in that time.

McEwen has unveiled an updated preliminary economic assessment (PEA) at Los Azules that considers changes such as an expanded global resource and a different processing method.

McEwen has added three years’ worth of drilling to the project, resulting in indicated and inferred resources having jumped 184% and 55%.

The project now hosts 389 million indicated tonnes grading 0.63% copper and 0.07 gram gold per tonne for 5.4 billion contained lb. copper and 840,000 contained oz. gold.

Inferred resources add 1.4 billion tonnes at 0.46% copper and 0.06 gram gold for 14.3 billion lb. copper and 2.58 million oz. gold. The tonnage  growth was offset by 14% and 12% decreases in grades.

Anticipated throughput levels and mine life have been adjusted upwards in the study as a result. Planned mill throughput has increased 20% to 120,000 tonnes per day, while mine life has been extended by a decade to 35 years.

Los Azules would crank out 171,000 tonnes copper per year, including 255,000 tonnes annually in teh first five years.

Anticipated life-of-mine cash costs have jumped to 12¢ per lb. copper production to US$1.08, net of gold by-product.

The company says in a release that, combined with a change in the process method, the estimated mine life has increased by 37%, total copper production by 44% and production costs per lb. copper remain low.

It adds that the new PEA includes plans for producing a copper cathode at site, which would “greatly reduce export taxes and project risk” by eliminating the need for a slurry pipeline.

The mine would produce a copper cathode using oxidative pressure leaching, and would heap leach lower-grade mineralized material.

The company says that the 2010 PEA contemplated producing copper concentrate and transporting it by pipeline through Chile.

The main advantages of on-site production include: eliminating a need for that pipeline, increasing recovered metals and reducing applicable export taxes by 50%.

Changes to the proposed mine plan have likely contributed to higher upfront development costs. Initial capital expenditures at Los Azules have soared by US$1 billion to US$3.9 billion, which has affected the project’s internal rate of return (IRR), though its net present value (NPV) has risen.

Los Azule’s pre-tax IRR has dropped from 21.4% to 17.6%, while its NPV has increased from US$2.8 billion to US$3 billion using an 8% discount rate.

Copper-price assumptions remain unchanged at US$3 per lb., with the project’s payback period rising from 3.1 years to 3.8 years.

McEwen had been trying to auction off Los Azules to a larger producer to start the year, but owing to falling metal prices, the company has been downplaying this corporate strategy since June.

McEwen had hoped to use proceeds from Los Azules to fund other development projects in its portfolio, but now it’s preserving capital and holding out for better metal markets.

McEwen shares traded between $1.72 and $4.92 in the last 52 weeks, and closed at $2.55 per share at press time.

The company recorded a non-cash impairment charge of US$124 million during the second quarter related to declines in metal prices, and a higher tax  proposal in Argentina.

McEwen reported US$39 million in liquid assets at the end of June, and maintains 263 million shares outstanding for a $671-million market capitalization.