Coro takes a second swing at San Jorge

One week after renegotiating a purchase agreement on its San Jorge copper-gold porphyry project in Argentina’s Mendoza province, Coro Mining (COP-T) will take another shot at getting the government permits it needs to proceed with mine development.

Under the new conditions Coro will pay Franco-Nevada (FNV-T) US$1.25 million per year over the next 10 years. When taken in context of the previous agreement — valued at US$9.25 million and due over the next 15 months — the new conditions extend the project’s payment timeline amidst lingering questions over the mine’s short-term political prospects. 

Coro is battling provincial legislation passed by the Mendoza government in 2007 that bans “toxic chemicals” in mining operations, including sulphuric acid for heap-leach processing at San Jorge. Despite environmental permitting and feasibility studies at the federal level, Coro’s sulphide-only bid was defeated by Mendoza’s lower house in August 2011.  

The project has been a focal point for environmental groups and non-governmental organizations, which staged protests outside the provincial legislature in February 2011.  

Mendoza remains a political hot spot for mining companies. The province’s tourism industry includes wine tours and skiing, and its agricultural sector relies on the Uspallata water basin, which flows into the surrounding river system. The company maintains the project will connect to the separate Yalguaraz hydrological basin and have no impact on neighbouring water sources.

Coro’s new development proposal attempts to sidestep Mendoza’s legislation by locating a heap-leach processing plant 22 km north in the pro-mining province of San Juan, where Yamana Gold (YRI-T, AUY-N) operates its Gualcamayo open-pit heap-leach mine.

The new off-site infrastructure carries a US$64.1-million price tag, including a US$23.5-million railway to transport ore, and a US$23.6-million acid and cogeneration plant in southern San Juan.  

According to Coro and Chilean-based consultants Process and Pipeline Projects, the new proposal should encounter “no legal impediment to the transport of ore between Mendoza and San Juan.” 

In theory, since Mendoza does not have laws against rock quarrying or open-pit operations, transporting ore outside the province using the new railway system should avoid existing legislation, and allow Coro to go ahead with a production plan that incorporates feasibility and engineering studies filed in April 2008. 

The new heap-leach development proposal would carry initial capital costs of US$184.5 million, including US$5 million in project contingency and US$8.2 million in working capital. Average cash operating costs over the first five years is projected at US$1.26 per lb. copper, with a 10-year mine life.

Off-site plan details have impacted the project’s value. The new economic assessment establishes a 29.3% internal rate of return (IRR)   with a net present value (NPV) of US$132.7 million, assuming a 10% discount rate and a US$2.80 per lb. copper price. Gold and primary resources would be unrecoverable under the leach-only proposal. 

The rejected float-only, on-site proposal projected a 28.6% IRR and a NPV of US$220 million with a 10% discount rate and US$2 per lb. copper price. 

The jump in copper prices helps offset rising production costs that increased from US69¢ per lb. under original conditions to US$1.26 per lb. under the off-site plant proposal. 

According to technical reports filed in 2008, San Jorge has proven and probable oxide and enriched ore reserves totalling 48 million tonnes grading 0.61% copper, or 342,600 contained tonnes copper. 

After shares tumbled 54%, or 31¢, following the provincial permit denial in August 2011, Coro spent eight months discussing legal action against the Mendoza legislature and creating an alternate production plan. Canadian business investors are protected by an Argentina-Canada bilateral investment treaty that could offer the company legal recourse under international law — a route the company reportedly intends to take, pending results on its new proposal.

Coro shares have risen with improving base-metal prices and heightened Argentinean demand for non-imported resources over the first two months of 2012. This year shares jumped 20¢, or 80%, to a 49.5¢ high. Coro has 132 million shares outstanding and a market capitalization of $63.5 million, with a 46¢ share price at presstime.