Antofagasta’s Los Pelambres expansion to cost extra US$400 million

Chilean miner Antofagasta (LSE: ANTO) revealed today that the expansion project at its Los Pelambres operation in the home country would cost US$1.7 billion, up from the original US$1.3 billion, due mainly to revised marine works and a desalination plant extension.

Construction of the project resumed in August, after a four-month halt triggered by the Covid-19 pandemic.

A detailed review of the schedule and costs, including those associated with the realized and ongoing restrictions linked to the global pandemic followed. The assessment also considered changes to the marine works to enable an expansion of the desalination plant.

The awaited upgrade, 45% complete as of December 2020, will add 60,000 tonnes of copper a year to Antofagasta’s overall production once in full operation. Annual output is expected to increase from 40,000 tonnes in the first year at the expanded throughput to 70,000 tonnes towards the end of a 15-year period.

The project includes the construction of a desalination plant and water pipeline, which will also benefit the existing operation in cases of prolonged or severe drought. It could also be used by a potential further phase of expansion, which may follow the current one if Antofagasta can secure the required environmental and regulatory approvals.

That phase will further increase production and also significantly extend the mine life of Los Pelambres as it accesses the operation’s substantial undeveloped mineral resources, which are currently five times larger than its ore reserves.

Despite the impact of Covid-19, Los Pelambres produced 90,500 tonnes in the last quarter of 2020, 5.4% higher than the previous three-month period. For the full year, copper production hit 359,600 tonnes, 1% lower than in 2019, accounting for nearly half of the company’s total copper output.

The reduced output at Antofagasta’s flagship operation was due mostly to lower throughput, which was largely offset by higher recoveries, the miner said.

Overall, the company produced 733,900 tonnes of copper last year and expects to churn out between 730,000 and 760,000 tonnes of the metal in 2021.

Antofagasta also anticipates producing between 240,000 and 260,000 ounces of gold and 9,500 to 11,000 tonnes of molybdenum this year.

“Antofagasta has delivered a strong set of operational results for Q4/20, with both production (+5% copper, +37% gold) and costs (-11%) beating our estimates, adding to the list of better-than-expected results from copper operations this quarter,” Alexander Pearce of BMO Capital Markets wrote in a research note. “Nevertheless, increased capex guidance at Los Pelambres (+US$200M vs BMO) and slightly higher 2021 production costs is likely to take some of the shine off the result.” 

Pearce noted that group by-product cash cost guidance for 2021 of US$1.25 per lb. copper is 3% higher than his estimate of US$1.21 per lb.