Far West’s Santo Domingo Sur to benefit from Salvador closure

SITE VISIT

Diego de Almagro, Chile — Vancouver-based exploration company Far West Mining (FWM-T, FWMLF-O) will update the resource estimate for its Santo Domingo copper property in Chile’s Region III this month, incorporating new drilling results on the Santo Domingo Sur deposit and two new satellite zones discovered during late 2006 and early 2007 exploration drilling.

Far West is looking to build a medium-sized copper operation capable of processing 40,000-50,000 tonnes of copper ore per day beginning in 2010; that would yield some 300 tonnes (661,386 lbs.) of copper per day from a resource of at least 1.8 billion lbs. copper. The bulk of the company’s $9.5-million exploration and development budget is to be spent on the property in 2007.

Currently, the company has 139 million tonnes grading 0.59% copper at Santo Domingo Sur, said vice-president and chief operating officer Rick Zimmer during a recent visit to the project.

“But we have expanded the deposit and found two new satellite zones, Estrellita and Iris, so our resource estimate is going to go up.”

A scoping study will be completed by the end of 2007 and prefeasibility at the end of 2008. Add another year for the full feasibility study and 18 months for construction, and startup could be in mid-2010. That could be at just the right time to take the sting out of the closure of state copper company Codelco’s Salvador mine, 25 km from the Santo Domingo property.

Diego de Almagro, a small town located in the Atacama Desert, 7 km from the project, depends on the operations of Codelco and state mineral company Enami for its survival and so faces an uncertain future with the closure of the 80,000-tonne-per-year copper mine. The shutdown is slated for 2011 despite political pressure to keep it open, given that Codelco is el sueldo de Chile — the pay packet of Chile. Walls around Diego de Almagro are sprayed with slogans such as No al cierre Salvador” — no to the Salvador closure.

The Salvador closure is a political hot potato that has been passed from president to president. Former President Ricardo Lagos ensured that closure would not happen on his watch, and President Michelle Bachelet achieved the same goal in May, when Codelco executive president Jose Pablo Arellano announced that production from the oxide production line has been extended by two years, following the agreement of a hedge contract that ensures profitability. The 20,000-fine-tonne-per-year oxide line was due to stop production in 2008, but will continue into the next presidential term with the hedge contract.

Such pressure was absent at Chile’s most recent mine closure, Barrick Gold’s (abx-t, abx-t) El Indio mine, which ceased production in 2002 and closed in 2005.

Existing infrastructure

The Salvador closure means that Far West will benefit from having a skilled copper workforce on its doorstep and access to readily available infrastructure such as the Pan-American Highway and an electricity substation that are less than 10 km from its property.

The company can also benefit from Codelco’s Potrerillos smelter, about 40 km away, and the port of Chaaral, within 100 km.

“We will save several tens of millions of dollars by not having to build a lot of infrastructure,” Zimmer says. “There is no one else in the area of our scale and so we would be a good replacement for the El Salvador operation.”

With a smelter and port access nearby, Far West would be in a good position to negotiate treatment and refinery charges for its copper concentrates.

“If you are captive to one smelter, you are a price-taker and not a price-giver, but we can sell to a smelter offshore. However, if we can get a competitive contract from Codelco, it would be worthwhile to use Potrerillos,” he says.

Although incomplete, metallurgical test work looks encouraging so far, Zimmer says.

“The concentrates look quite good with thirty per cent copper content and no red flags yet for impurities, but we have not finished metallurgical testing.”

Perhaps most importantly, Far West could obtain water rights from the Codelco operation. The company is undertaking water studies with AMEC Earth & Environmental to identify resources on its property and has had initial talks with Codelco about using its water.

“Codelco has approached us about buying water, but we’re still doing water studies on our property and will not know our requirement until we have designed the operation,” Zimmer says.

It might be in Far West’s interest to exploit potential development synergies with Codelco’s Inca del Oro copper deposit, 25 km south, which potentially contains 300 million tonnes of oxide and sulphide ore. Codelco is expected to make a decision about what to do with it in the coming months, although it is unlikely that it will develop the project itself.

“Inca de Oro is quite big, but possibly not big enough for Codelco,” says Far West exploration manager Rodrigo Gomez.

As a small company, Far West may seek a joint-venture partner to help develop and finance the project.

“Given the limited financial resources we have, we would probably look for a partner. China is very active in the copper business these days, so we will look to talk to them and other groups about financing later on,” Zimmer says. “As the big mines wind down, their cost of production is going to go up, so a project like Santo Domingo is going to become increasingly valuable. A lot of things will start to happen when we get the resource study done in mid-year.”

Exploration

Santo Domingo Sur is a new discovery on the copper industry radar as exploration only began in 2005. The deposit, located in the Sierra Santo Domingo, has iron manto beds that dip to the northwest and extend 700 metres south-north and about 500 metres east-west. Copper mineralization was hit at 30 metres in the discovery hole, intersecting a stacked sequence of copper-bearing iron mantos ranging from 50-150 metres thick.

Exploration continues on the nearby Estrellita and Iris deposits. Far West says it has developed an expertise in looking for IOCG deposits and it has a 200-sq.-km land package to explore in the Santo Domingo area, in addition to other properties in the belt.

“Where there is copper, there is iron, but not all iron bodies contain copper,” Zimmer says. “The exploration on this belt is largely ignored by the majors because they are focused on the giant porphyry deposits outside the IOCG belt.”

The project is the result of an agreement with BHP Billiton (bhp-n, blt-l) to explore for IOCG (iron-oxide copper gold) deposits in the iron belt, a geological feature that begins to the north of Santiago and extends past Antofagasta in Region II and hosts Freeport-McMoRan Copper & Gold’s (FCX-N) Candelaria, Anglo American’s (AAUK-Q) Manto Verde, Manotos Blancos and El Soldado, and Antofagasta Minerals’ (anfgy-o) Michilla mines.

The Santo Domingo Sur property was discovered using BHP Billiton’s Falcon airborne gravity survey technology. Far West earned 70% of the project after spending $2 million on exploration, and picked up the remaining 30% when BHP Billiton declined to take the lead in its further development.

Far West will also start exploration drilling at its Georgetown lead-zinc-silver project in Australia this year, targeting Broken Hill-type deposits like the high-grade Cannington mine. Exploration on the Farallon Negro porphyry copper-gold property in northwest Argentina, which lies near Xstrata’s (XSRAF-O, XTA-L) Alumbrera mine and Northern Orion Resources’ (NNO-T, NTO-X) Agua Rica project, will begin once the company has secured all surface rights.

— The author is a freelance writer based in Santiago, Chile.

T.N.M.

FAR WEST MINING (FWM-T)

PROJECT: SANTO DOMINGO SUR COPPER PROJECT

LOCATION: Chile’s Region III

RESOURCE: 139.4 m t (indicated) averaging 0.59% Cu in Santo Domingo
Sur deposit; resource estimates for the Estrellita and Iris deposits to come

FEASIBILITY: Scoping study to be completed by end of 2007 with prefeasibility expected in late 2008; full feasibility by end of 2009

INFRASTRUCTURE: Pan-American Highway and electricity substation located within 10 km; smelter 40 km away; port of Chanaral 100 km away; project would also benefit from skilled labour force currently working at Codelco’s Salvador mine, scheduled to close in 2011

DEVELOPMENT PLAN: Company foresees a 40,000-50,000 tpd operation producing 200 t Cu per day starting as soon as mid-2010