Oroco boosts economics at Santo Tomas copper project in Mexico to lead peers

Oroco Resource (TSXV: OCO; US-OTC: ORRCF) says a new study makes its Santo Tomas copper project in western Mexico one of the world’s most capital-efficient by hiking its value 23% while trimming construction costs.

The Vancouver-based explorer’s revised preliminary economic assessment (PEA) increases the porphyry project’s net present value (NPV) to almost US$1.5 billion from US$1.2 billion in a PEA from last October, both at an 8% discount rate. The new study issued on Tuesday lowers initial capital expenses to US$1.1 billion from US$1.3 billion in the previous effort.

The internal rate of return increases to 22.2% from 17.3%. However, sustaining and expansion capital costs rise to US$1.7 billion from US$1.1 billion over the 22.6-year mine life, 2.6 years longer than originally envisioned. Payback improves to 3.8 years from five.

The 20-stage open pit mine and processing plant in Sinaloa state would start at 60,000 tonnes per day in the first year of production as in the previous PEA. However, expansion to 120,000 tonnes per day would be moved to the eighth year instead of the second. The first PEA envisioned four pit stages.

“A staged approach to the mine expansion and a focus on exploiting the higher-grade near-surface material in the early years of mining has unlocked a considerable increase in value,” Oroco CEO John Lock said in a release. “We have established a plan that invokes a very efficient use of capital.”

Case vs peers

The company cited a metric of after-tax NPV per initial capital spending – US$1.48 billion/US$1.1 billion – that ranks Santo Tomas more efficient than other low-cost, large-scale copper projects. These rivals include Ivanhoe Electric’s (TSX: IE; NYSE-AM: IE) Santa Cruz project in Arizona, McEwen Mining’s (TSX: MUX; NYSE: MUX) Los Azules project in Argentina and Los Andes Copper’s (TSXV: LA; US-OTC: LSANF) Vizcachitas project in Chile.

Shares of Oroco Resource jumped nearly 11% by early afternoon Tuesday in Toronto to 39¢ apiece, valuing the company at $94 million. They’ve traded in a 52-week range of 32¢ to 74¢.

The new PEA keeps Santo Tomas’ total payable copper production of about 4.8 million lb. while lowering the average annual life of mine cash cost to US$1.54 per lb. copper on a byproduct basis from US$1.66 per pound.

Oroco forecasts copper production would average 207.5 million lb. per year over the mine life at a mill feed average grade of 0.51% copper-equivalent. Production byproducts over the mine life are estimated at 138.7 million lb. of molybdenum, 55.2 million oz. of silver and 753,400 oz. of gold.

“The plan starts with the use of smaller equipment to provide rapid entry to the mineralized material and maintains a higher-grade feed profile to delay the requirement of an expansion,” Lock said.

Resource update

The new PEA updates the Santo Tomas resource to 540.6 million indicated tonnes grading 0.33% copper, 0.008% molybdenum and 0.03 gram gold per tonne. It also has 530.3 million inferred tonnes at 0.31% copper, 0.007% molybdenum and 0.002 gram gold.

That compares with 561 million indicated tonnes at 0.37% copper-equivalent and 549 million inferred tonnes at 0.34% copper-equivalent in last year’s PEA.

The new resource was based on prices of US$4 per lb. copper, US$13.50 per lb. molybdenum, US$1,700 per oz. gold, and US$22.50 per oz. silver. 

Production at Santo Tomas would be preceded by two years of construction and pre-stripping as in the previous study, Oroco said.

The 90-sq.-km Santo Tomas lies in northern Sinaloa and southwest Chihuahua. Oroco holds an 85.5% interest in the 11.7-sq.-km central concessions, plus an 80% interest in the surrounding 78.6 sq. km.

The new PEA was based on data from more than 43,000 metres of drilling by Oroco as well as over 21,000 metres of legacy drilling in the North and South zones.