Amerigo happy to live in Codelco’s shadow

Amerigo Resources (ARG-T), which continues to produce copper and molybdenum from the tailings of Codelco’s 108-year-old El Teniente mine in Chile, saw its shares rise after solid third-quarter production results. 

For the period ended Sept. 30, Amerigo — through its wholly owned Chilean entity, Minera Valle Central (MVC) — recovered 12.7 million lb. copper and 321,788 lb. molybdenum from fresh and old tailings of El Teniente, the world’s largest underground copper mine, located near Rancagua city. 

It processed 14.1 million tonnes at grades of 0.149% copper and 0.88% molybdenum. Recovery rates were 27% for copper and 84% for molybdenum. 

“Production was strong in the quarter, and we expect it to remain so during fourth-quarter 2012,” Amerigo president and CEO Klaus Zeitler states in a release.

Year-to-date, Amerigo has generated 38.15 million lb. copper and 767,000 lb. moly, putting it on track to reach its full-year guidance of 50 million lb. copper and nearly 1 million lb. moly. 

Copper output for the three and nine months ended Sept. 30 were 15% and 20% higher than last year’s corresponding periods, Zeitler says, adding that moly production was up 73% in the quarter and 30% in the first nine months, compared with the same periods last year. 

For the third quarter, Amerigo noted power costs of 16.6¢ per kilowatt hour (kWh), compared to 19.5¢ per kWh in the previous quarter, and 17.9¢ per kWh a year ago. 

While power costs fell slightly, the company anticipates even lower numbers starting next year, thanks to a change in MVC’s power contract that will result in “substantial annual saving through to the end of 2017,” Zeitler says. 

Formed in the early 1990s by several former Codelco executives and the financial backing of Fe Grande S.A., a large Chilean private construction group, MVC began processing tailings from the El Teniente mine in 1992 at its then-newly constructed plant, under contract with Codelco until 2021. 

But in 2003, MVC was sold to Amerigo after not fitting Fe Grande’s business plan. Since then, Amerigo has expanded the MVC facilities and tacked on a molybdenum plant. 

The mine, which began operating in 1904, is undergoing its own expansion as part of a multi-billion dollar program to extend its life for another 50 years, and help Chile’s state-run giant, Codelco, remain the world’s top copper producer. 

This bodes well for Amerigo, which is looking to grow production. So far it has been processing fresh tailings from the mine’s current production and old Colihues tailings pond next to MVC’s processing plant. Colihues is estimated to contain more than 200 million tonnes of material and grades 0.25% to 0.3% copper — about three times the grade of the fresh tailings. 

Amerigo envisions increasing output by obtaining rights to process more old tailings from the mine’s other tailings ponds, and by expanding Colihues’ extraction to 45,000 tonnes per day, up from the current 30,000 daily tonnes. 

Amerigo says it’s in discussions for rights to Cauquenes, a tailings pond adjacent to Colihues. 

Amerigo is set to release its third-quarter financials on Nov. 8, and hold a conference call the following day.

On the production results, Amerigo gained 13.5% to close Oct. 16 at 59¢.