Boyongan returns positive economics in Philex Gold’s prefeasibility study

Vancouver – It is the Philippine project’s second prefeasibility study this year.

After disagreeing with metal prices and costing assumptions used by Anglo American (AAUK-Q, AAL-l) in a prefeasibility study that rendered the Boyongan copper-gold project a no-go for Anglo in early 2008, Philex Gold (PGI-V) has released more positive results in its own prefeasibility study using less conservative parameters. The project is on the northeastern tip of Mindanao Island.

In February 2008 Anglo, who then had a 50% stake in the project, announced that based on its prefeasibility study of the Boyongan project it didn’t believe the economics were good enough to warrant investment. Anglo had set the price of copper at US$1.50 per lb. and the price of gold at US$600 per oz.

After the results came out Philex Gold countered that, among other conservative assumptions on capital costs, those metal prices were overly stringent and essentially neutered the project from the get-go.

In a July press release clarifying its position on Anglo’s prefeasibility study Philex Gold said, “Anglo increased the basic capital expenditure estimate by 24% to cover engineering and owners’ costs and by another 25% for contingency provisions…but in the opinion of the Company the above amounts are excessive in the Philippine context.”

Likewise Philex Gold argued that Anglo had set metal prices too far below what were then high prices of copper and gold. In the same press release it said, “Currently, copper is priced at $3.65 per pound and can be hedged for as long as five years for at least $2.50 per pound. At this time, gold can be hedged at approximately $950/per ounce.”

In view of its more bullish outlook on metal prices Philex Gold sent the Boyongan project back to the drawing board.

Although prices of both copper and gold have decreased substantially since then, in the base case of its now released prefeasibility study Philex Gold says Boyongan is economically viable.

The study considered proven and probable resources of 67.8 million tonnes grading 0.87% copper and 1.37 grams gold per tonne accessible by open pit. Setting the price of gold at US$700 per oz. and the price of copper at US$2.75 per lb., the project returns an NPV of US$150 million and payback period of 3.5 years.

Capital costs for the 5-million-tonnes-per-year operation come in at US$737 million and include pre-stripping. The mine life is estimated at 14 years and to remain economic the respective prices of copper and gold need to average more than US$2.12 per lb. and US$470 per oz.

Following Anglo’s dim assessment of the project both Anglo and Philex Gold sparred over what should happen to Anglo’s 50% stake. In early 2008 Philex Gold asserted that it believed Anglo should return the stake to it, a view Anglo contested.

Since, however, Philex Gold and Anglo have reached an agreement. On Sept. 26 of this year Philex Gold announced that, with the help of its parent company Philex Mining, it would purchase Anglo’s 50% stake in the project for 55 million which, if finalized, will give it a 100% interest in Boyongan.

Philex Mining has an 81% stake in Philex Gold.

On news of the positive prefeasibility study Philex Gold’s share price held even at 20.5¢. It has about 40.6 million shares issued.